August 06 2014

elb2Trayport to launch UK energy contracts while remaining independent within CME. HKEx results, various regulatory actions. Thoughts on Canadian regulation, several CCP snippets of note, storm in a 15% teacup over MCX stake sale, Happy Birthday Gemini! ISE demonstrates how to create a proper liquid market in 1 year and celebrates its success in a mature, restrained manner… LME sensibly introduces Commitment of Traders Report while we have HFT, HFT and thrice HFT stories (and more!) as TMX buys a low latency connection and Brad K ponders life change through IEX and Michael Lewis’ associations. UK looks at encouraging Bitcoin, as Chinese market introduces futures, while we also have anti trust tales and news of multiple investigations.

It’s a bumper Wednesday, so much news, such summery weather…and to think less than 18 months ago nobody believed there could be a daily devoted just to Exchanges and market infrastructure… Well, aren’t you glad I ignored my alpha test group? I know I am, even if it has cost me a fair old wodge of cash for the team to bring you Exchange Invest… Happy scrolling:

Meanwhile, a friendly reminder: if you like the free stuff and want to support us building out the industry platform for markets, please join our top tier, it’s only $120 per annum and keeps this daily newsletter free (You can subscribe here). Recent stories include:

New: Has CME Europe Chosen the Right Man?

CME GFI & the New IDB Paradigm

NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

…more interesting insights will be following soon…

Public Markets

HKEx H1 2014 Financial Results

Highlights H1 2014

Revenue and other income $4,621 mln, up 4%
EBITDA $3,198 mln, up 3%
Basic EPS $2.04
Interim dividend per share $1.83, up 1%

Announcement/Presentation by HKEx CEO Charles Li and Group CFO Paul Kennedy on 2014 Interim Results – Here.

FTIL Says MCX Stake Sale To Kotak Bank Done At ‘Fair’ Price
The Economic Times

FTIL on Tuesday said its 15% stake sale in MCX to Kotak Mahindra Bank for Rs 459 crore ($76.1 million) was done at “fair” price after conducting a “transparent” bidding process.

Rakesh Jhunjhunwala bought 2% of MCX from FTIL on July 9th, and, on July 16th, bought another 490k (0.96%) shares of MCX. On 20 July, Kotak Mahindra Bank bought a 15% stake in MCX from FTIL for Rs.459 crore ($76.1 million).

PLY: I still believe this amounts to regulatory checking rather than a major story, it is difficult enough to place 15% of any company in a public quoted market, much trickier MCX at a time when the stock was jumping all over the place in a febrile market.

CME To Start EU Gas Futures As Trayport Remains Independent
Isis Almeida – Bloomberg

CME plans to start U.K. and Dutch natural gas futures while keeping the energy trading platform it agreed to buy from GFI independent, CME/Trayport will probably offer gas trading at the U.K.’s National Balancing Point and the Title Transfer Facility in the Netherlands as early as next month, Martin Fraenkel, CME’s MD for International Energy, said on Monday. The expansion means the Chicago-based bourse will rival other exchanges that feed prices into the Trayport Ltd. system it agreed to buy last week.

EI reported on July 31 that CME agreed to buy GFI.

PLY: Again, check my article on the merger, right now most of the brokers are tied into pretty long contracts so it will be tough for them to just walk away from Trayport no matter how the market is developed around it – but then again a point to ponder: was it worse for ICAP Energy to be proximate to CME or with deadly IDB rival GFI?

ISE Gemini Celebrates First Anniversary – Trades Over 94 Million Contracts In First Year
Mondo Visione

ISE Gemini announced that it successfully completed its first year of operation, having launched on August 5, 2013 as the twelfth options exchange in the U.S. and also as the second options exchange under ISE Holdings. Through ISE Gemini’s first year of trading, over 94.5 million contracts were traded with an average daily volume (ADV) of 375,041. ISE Gemini has steadily grown market share ending the first year on a strong note with 3.1% market share in July, excluding dividend.

PLY: As always the ability of ISE to implement is impressive at all times. Happy Birthday Gemini – congratulations on showing new exchanges can build genuine liquidity and economically beneficial volume.

Dark Pool Scrutiny Expands To Include Goldman, Morgan Stanley
Charlie Gasparino – Fox Business

EI reported on June 26th that NY AG Eric Schneiderman announced fraud charges against Barclays in connection with the marketing and operation of its dark pool and subsequently on July 30th that UBS, Credit Suisse and Deutsche Bank have been drawn in a probe against their dark pools.

PLY: NY AG Eric Schneiderman is going to drag everybody into his investigation so the addition of further names, particularly major Wall Street players such as these, is hardly surprising…

KDPW_CCP – Securities Netting: Lower Settlement Cost
Mondo Visione

KDPW_CCP has launched a securities netting mechanism as of 4 August 2014: in practice that KDPW_CCP may generate one settlement instruction sent to KDPW (or another settlement institution) for securities and/or cash settlement for all operations which credit and/or debit a designated settlement account.

LCH.Clearnet Recognised As A Clearing House In Québec By The AMF Québec
Mondo Visione

LCH.Clearnet Limited (LCH.Clearnet) has been granted clearinghouse recognition by the Autorité des marchés financiers (AMF).

PLY: Thinking back to my remarks the other day concerning the Federal regulatory system in Canada, perhaps the best way forward is not a single unified regulator and all the concomitant bickering about Toronto/Montreal/Ottawa/New Brunswick/Prince Edward Island/wherever… as the HQ but rather a “Canadian Regulator’s Agreement” akin to the original marketplace deal – so Ontario would be the cash market regulator, Quebec the derivatives, with commodities in Manitoba…

IOSCO Launches Public Information Repository For Central Clearing Requirements
Mondo Visione

IOSCO unveiled an information repository for central clearing requirements for OTC derivatives, which provides regulators and market participants with consolidated information on the clearing requirements of different jurisdictions.

PLY: A very useful facility, IOSCO is absolutely going from strength to strength under David Wright’s stewardship. The day the EU lost him was a black one for Brussels. (Then again it was all due to the useless machinations of British Prime Minister Gordon Brown who did so much to bankrupt the UK whose last appearance in this parish was to speak to the CME Conference).

ESMA Issues Guidelines On The Implementation Of The CPSS-IOSCO Principles For Market Infrastructures In Respect Of CCPs
Mondo Visione

ESMA has issued guidelines and recommendations regarding the implementation of the CPSS-IOSCO Principles for Financial Market Infrastructures in respect of CCPs.

ESMA Releases Responses To MiFIDII/MiFIR Consultation And Discussion Papers
Mondo Visione

ESMA has made public the responses it received to its Consultation and Discussion Papers on MiFID II/MiFIR.

Discussions on the topic on EI May 23rd.

LME Publishes New Commitments Of Traders Report
London Metal Exchange

LME published its first Commitments of Traders Report (COTR) in response to general market demand for broader transparency. The COTR is designed to reflect the nature of the predominant business activity that LME members and their clients are involved in.

PLY: A very interesting development which will add granular information to understanding the metals market – a useful addition to the LME marketplace.

Private Markets

Bats Said In SEC Settlement Talks Over High-Speed-Trading Perks
Sam Mamudi – Businessweek

Bats Global Markets Inc. is in negotiations with U.S. regulators to settle accusations that Direct Edge, the stock exchange operator it bought in January, gave unfair advantages to high-frequency traders.

The settlement talks follow a U.S. SEC inquiry begun more than two years ago into key facets of modern markets, including order types — or instructions for handling transactions that traders can send to exchanges. Critics including Haim Bodek, a former Goldman Sachs Group Inc. trader, allege that the fastest traders use the dozens of order types available at exchanges to disadvantage other investors.

EI reported on July 23rd that Bill O’Brien, Bats’ President, left the company. He was CEO of Direct Edge since 2007. Direct Edge merged with Bats in January 2014.

Bill O’Brien was involved in April in a TV fight over HFT with Brad Katsuyama, IEX President and CEO, and one of the central characters of Michael Lewis’ “Flash Boys”.

Brad Katsuyama: ‘Flash Boys’ And The Speed Of Lies About My Firm
Brad Katsuyama (President & CEO IEX Group) – New Zealand Herald

In the last few months, I have had a strange and interesting experience. In early April, I found myself the main character in Michael Lewis’s book “Flash Boys”. It told the story of a quest I’ve been on, with my colleagues, to expose and to prevent a lot of outrageous behaviour in the US stock market.

After the book, our stock market, IEX Group, became a topic of discussion – some positive, some negative, some true and some false. Fair enough. If you’re in the spotlight and doing something different, you should take the heat along with the light.

HFT Takes Root In U.S. Securities Class Actions
Jonathan Stempel – Reuters

Investors have wasted no time making HFT, the subject of Michael Lewis’ recent best-selling book “Flash Boys: A Wall Street Revolt,” a focus of securities class-action litigation, according to a study released on Wednesday.

One of 78 federal securities lawsuits seeking class-action status and filed between January and June targets the practice, according to data from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

NSE Guilty Of Abusing Dominant Market Position’: Compat

In a June 2011, the CCI had, on a complaint by rival MCX-SX, held that the NSE had violated trade practices and abused its dominant market position by indulging in “predatory pricing” when it stopped charging fees for trading in currency-derivatives contract.

PLY: An interesting debate – similar to how the CBOT was never going to reduce Bond trading charges until the day before EUREX US launched its rival T Bond complex at which 11th hour CBOT cut fees savagely…

UCX Closure Imminent As Promoter ‘Siphons Off’ Funds
Mr Subramani – The Hindu Business Line

The 16-month-old UCX faces an uncertain future with all its employees quitting and its promoter “siphoning off” the corpus. Sources said about 75 employees have quit on instructions from the senior management and are serving their notice period, which ends on August 31.

NSE To Revoke Licenses Of Inactive Brokers After Six Months
Goddy Egene – This Day Live

NSE is to revoke license of any dealing member that is not active for six months. This is part of the new amendments the NSE is making to its rules. While there are some stockbroking firms, which have not been active for years, their licenses have remained with them. However, in apparent move to reduce the number of dormant market operators, the NSE is proposing an amendment to its rule regarding revocation of inactive dealing members.

UK To Explore Bitcoin Role – George Osborne

The government is to explore the role that digital currencies such as Bitcoin could play in the financial system and whether they need to be regulated. Chancellor George Osborne will unveil the plan when he sets out measures intended to make Britain the “global centre of financial innovation”.

PLY: Encouraging news that the UK Finance Minister is actually looking at Bitcoin with a perspective of economic growth not regulatory decimation…

Bitcoin-Like Money Is Ecuador’s Latest Dollar-Saving Plan
Nathan Gill – Bloomberg

After mortgaging most of Ecuador’s oil and gold to finance spending, President Rafael Correa is planning to create virtual money to pay the nation’s bills.

Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador. Once signed into law, the country will begin using the as-yet-unnamed currency as soon as October. A monetary authority will be established to regulate the money, which will be backed by “Liquid assets.”

PLY: Very interesting indeed – I am not sure Mr Correa makes my list of leaders with impeccable fiscal credentials but of monetary experiments beyond drab “have a central bank, trust me I’m the Governor, our money is good, and print a few billion more while you’re at it,” I always approve no matter where in the world.

Bitcoin Catches On In Tech-Savvy Romania
Business Recorder

FAO: Previous discussions about Bitcoin booming in Romania were included in Exchange Invest on August 4th.

Dividend News

HKEx Board has declared an interim dividend of $1.83 per share (2013: $1.82 per share) for the year ending 31 December 2014. The interim dividend will be payable in cash with a scrip dividend alternative. The scrip dividend alternative is conditional upon the SFC’s granting the listing of, and permission to deal in, new shares of HKEx to be issued pursuant thereto.

Relevant Dates for Interim Dividend Payment

Ex-dividend date 19 August 2014
Closure of ROM 21 to 22 August 2014 (both dates inclusive)
Record date 22 August 2014
Despatch of scrip dividend circular and election form on or about 28 August 2014
Despatch of dividend warrants/definitive share certificates on or about 22 September 2014

Special Section: FTI, NSEL, India at the Crossroads’

PLY: Another day and an attachment, been a few days since somebody’s assets got spliced up… while both major stocks are down, MCX about 2% and FTIL nearly 4% as we race for pixel.

NSEL Scam: Enforcement Directorate Attaches Assets Worth Rs 67 Crore (USD 10.9 Mln) Of Accused Firm
The Economic Times

Enforcement Directorate (ED) has attached land worth Rs 67 crore (USD 10.9 mln) in connection with its by money laundering probe into the operations of NSEL. Initiating action in this case after a long time, the agency has seized 170 acres of land assets of a Punjab-based defaulting firm M/s Ark Imports Private Limited.

PLY: Note came from the ED not the Mumbai Fraud squad (EOW).


Toronto Exchange Signs Deal to Boost High-Speed Trading Role (subscription)
Ben Dummett & Bradley Hope – Wall Street Journal

Canada’s flagship stock-exchange operator jumped into the high-speed trading race with a deal to acquire a microwave network linking markets in Toronto, New York and Chicago. Global Trading Systems LLC CEO Ari Rubenstein said Tuesday that TMX agreed to buy its StrikeNET network.

PLY: Tom Kloet will leave office in the autumn but first at least one little final flourish…

Eurex Expands Distribution Network Of Its Trade Entry Services
Deutsche Börse

Eurex Group introduced connectivity of Trade Capture Platforms (TCPs) via the enhanced Multilateral Trade Registration (MTR) Service as of Monday. The first TCPs are BrokerHub and Vectalis; ITG RFQ-hub intends to connect on 11 August. The service expansion will increase the efficiency of block trade execution and processing for Eurex listed derivatives via an automated straight-through process (STP) also enhancing transparency and audit trail throughout the trade lifecycle, from the preliminary negotiation to the final confirmation by the counterparties and acceptance by Eurex Clearing.

FIA & FIA PTG Comment On Modernizing CFTC’s Surveillance
Mondo Visione

FIA and the FIA Principal Traders Group sent a letter to the CFTC, urging the CFTC to leverage existing resources as it works to develop a 21st-century surveillance system.


BSE Seeks To Host Govt Debt Auctions On Exchange
Santanu Chakraborty & Shikhar Balwani – Livemint

BSE is seeking approval from India’s central bank to host government debt auctions to lure more individual investors. BSE, backed by DB1, has asked RBI to allow debt issuance through its electronic securities-sales platform, CEO Ashishkumar Chauhan said. RBI now holds weekly sovereign-note sales, which are open to individuals though dominated by institutional investors and banks, on its own platform.

PLY: A very good idea – indeed given fixing concerns, why aren’t we making all bond auctions take place on exchange platforms?

China Exchange OKCoin To Launch Bitcoin Futures Trading
Jon Southurst – Coin Desk

Chinese exchange OKCoin announced it will add futures trading to its platform.

PLY: OKCoin’s futures trading, will be in beta for the next two weeks before going live and builds on various more informal forward / derivative markets which have been in existence… Very interesting…


FTSE Introduces New Global Factor Index Series
Mondo Visione

FTSE Global Factor Index Series are a new suite of benchmarks designed to represent the performance of specific factor characteristics. Six single factor indices will be created as part of the index series: Illiquidity, Momentum, Quality, Size, Value and Volatility. They will be based on the market cap weighted FTSE Developed and FTSE Emerging indices.

China To Launch Series Of Volatility Indexes By Year-End (subscription)
Xiao Wang – Risk

China intends to follow the start of onshore equity option trading later this year with the launch of three volatility indexes, according to two sources familiar with the matter. The move will mean there are seven countries with domestic benchmarks of this type in Asia-Pacific.

Career Paths

Bursa Malaysia Bhd announced cessation of office of Datuk Dr. Syed Muhamad bin Syed Abdul Kadir as Independent & Non Executive Member of Audit Committee, effective August 5, 2014.

DTCC announced two executive management appointments in its Global Trade Repository business as the company continues to expand operations globally to bring greater transparency to the OTC derivatives market and to help financial firms meet new regulatory trade reporting mandates. Chris Childs will assume the role of CEO, DTCC Deriv/SERV.

Childs, who has served as COO of DTCC Deriv/SERV since 2013, will now oversee all aspects of DTCC’s OTC derivatives global post-trade processing and trade reporting services. He has more than 30 years experience in consumer & corporate banking operations, previously serving in senior-level roles at DTCC and, before that, at Citigroup, where he was Global Processing Head of Capital Markets Operations.

DTCC press release here.

Financial Calendar

This week

ICE Q2 2014 financial results
TMX Q2 Financial Results
HKEx Financial Results
MarketAxess $0.16 quarterly cash dividend payment

New announcement

Markit Q2 Financial Results – Wednesday August 13th 2014
MCX India Q1 Financial Results – Wednesday August 13th 2014

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

Other Stories

CFTC Shows US Commodity Manipulation Laws Have Teeth: Kemp
John Kemp – Reuters

By extracting a $13 million penalty and imposing tough restrictions on future oil trading by Arcadia and others, the U.S. CFTC this week sent a powerful signal that laws against market manipulation still have teeth.

The case challenges a now famous view expressed in 1991 by commodities lawyer Jerry Markham that manipulation of commodity future prices had become an unprosecutable crime. (“Manipulation of commodity futures prices: the unprosecutable crime”)

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