August 07 2013

elb2 Wow, only Wednesday and it feels as if we have had a week of news from India alone! That story carries on while ICE has good results and Warsaw is looking acquisitive to the west and (thankfully) not Vienna this week. The smoking gun is a new avenue of index options litigation between ISE and CBOE. And there’s more…

(Thanks incidentally for all the ASX feedback from my comments yesterday, does anybody disagree with my view, I wonder?).

Public Markets

ICE 2Q Profit Up 7 %

ICE profits increased 7% in Q2.despite some costs as part of the NYSE acquisition process. Analysts anticipated $2.14 and received $2.09 but allowing for merger costs, the figure was $2.19.

Press Release here.

PLY: One more quarter to go (admittedly with the benefit of LIFFE’s clearing) and we can look forward to some interesting numbers as ICE starts to get their teeth into NYX. I remain confident ICE will raise revenues and cut costs with alacrity.

Warsaw SE Said to Plan Purchase of 30% Aquis Stake

GPW/WSE is in talks to buy a 30% stake in Aquis Exchange Ltd., the London-based start-up,
making it the biggest Aquis shareholder giving Warsaw a seat on the board. Aquis will retain its own trading system and would apparently like to raise as much as 13 million pounds ($20 million) from the sale.

Press Release here.

PLY: An interesting development with potential for Warsaw shareholders. GPW has reached a scale where it needs to either ignore / outsource the micro opportunities of the crowd/various contiguous markets and seek projects which can add shareholder value. An investment in Aquis is a vastly better proposition than the increasingly urgent efforts of Vienna to sell itself.

Apart from the usual deal risks of a start up platform created with a high budget (and high overheads: Alastair Haynes has achieved many things, being cheap is not one of them), the only point to ponder is that Warsaw itself (as per various business plans which have so far not achieved fruition) remains hugely open to an MTF challenge in its home market given its relatively high fees.

New Front In Legal Battle Over Options Contracts (subscription)
Wall Street Journal

PLY: Even after the Supreme Court ruling in May, ISE are not giving up, finding another avenue in copyright to argue for a copycat product to attack the CBOE’s cash cow S&P index options et al. This has massive potential ramifications especially for, CME and LSE if it succeeds, not to mention CBOE which was sustained in their darkest days of warding off the ISE attack thanks to a quarter of revenue being tied up in their exclusive index products franchise…

ICE CEO Shrugs Off Banks’ Exit From Commodities (subscription)
The Wall Street Journal

Jeff Sprecher says commodity futures trading activity will remain strong despite some Wall Street banks’ planned exit from commodities businesses:

“These physical commodities infrastructure resources are valuable businesses that will continue to require risk management regardless of who owns them.

PLY: I would contend banks have arguably got a stranglehold of intermediation in many respects currently and a more open commodity market creates more trade, as indeed a fair warehouse system will help boost volumes too. Wonder if there is any merit in a Creditex-style bank sell-off of warehouses to ICE? Just a thought.

LSE Goes Live With Pre-LOU

LSE has become the fourth organization to launch a pre-Local Operating Unit that will allocate pre-Legal Entity Identifiers and include a process of entity validation, duplication prevention and entity eligibility checks: a legal entity identifier (LEI) pre-Local Operating Unit (pre-LOU), including a portal with a consolidated view of data from the three other pre-LOUs currently issuing pre-LEIs.

PLY: Usually when editing we cut out the introductory text which may be too elementary for readers of this parish. Here, plaudits to the good folks of Inside Reference Data: this story has so little context we’re still not clear what it means but we reckon it must be important…

Bull Of The Day: CME Group (CME)

Looking for another way to play rising interest rates besides buying banks? How about the world’s largest futures exchange which handles over $3 trillion worth of interest rate derivatives contracts every day.

PLY: Indeed. Or, if rates are going to increase materially, play FCMs/brokers who will soon have a chance to make some cash from haircuts which has been largely eluding them for a decade…

CME Has a Bright Future, But Expensive Shares
Motley Fool blog

PLY: A pleasant rudimentary attempt to analyse the exchanges which demonstrates why the “DEF” ‘reforms’ et al are so key to understanding valuation going forward along with the possibility that soon there may be a return of rising interest rates to worry CFOs the world over. The canard in this story is repeating the prevailing idea of single digit growth. That would be a marked failure in such a world of opportunity where CME have everything to gain…

Private Markets

Integral Applies To Launch FX SEF
The Trade

FX trading solutions provider Integral Development has joined the growing list of SEF applicants, applying to CFTC for an fx SEF called INFX SEF.

As the service is offered via Integral’s cloud, the firm said there are no upfront investments and customers will be able to use a pay-as-you-go model fee structure.

Credit Suisse 1st Clearing Firm to Onboard With trueEX For IRS
The Sacramento Bee

Credit Suisse has completed all of the on-boarding required to allow clients to access the trueEX Designated Contract Market (DCM) exchange and related trueEX services such as the PTC (Portfolio Terminations and Compactions) platform.

The trueEX SEF application was filed with the CFTC on July 15, 2013 and is currently in pending temporary registration status.

Connamara Systems Joins IPXI As Associate Member

Connamara Systems, LLC (Connamara), a wholesale market IT service provider has joined Intellectual Property Exchange International, Inc. (IPXI) as an Associate Member.

Connamara has served as a technology partner to IPXI since 2012, providing system development and support for the Exchange’s new proprietary electronic trading platform.

PLY: Not too sure on this one. Good to see IPXI getting a member but as it’s their IT partner, that would concern me the exchange is already losing momentum? Strikes me more as a contrary indicator of a press release, alas. I hope I am wrong and IPXI is thriving.

Tanzania – Exporters Caution Over Envisaged Commodity Exchange
Daily News

Market monopoly concerns in some regions could stymie growth in the envisaged Commodity Exchange.

SEC, Ghana SE Act On Liquidity Challenge

Ghana SE is in talks with listed companies on the stock market to increase free float.

Dividend News

HKEx Forfeiture Of Unclaimed Interim Dividend

Pursuant to the Articles of Association of Hong Kong Exchanges and Clearing Limited (HKEx), the unclaimed interim dividend for 2007 will be forfeited and will revert to HKEx on 18 September 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: By the moderately cataclysmic standards of the past week, the NSEL affair has had a quiet day. FTI is rallying pretty strongly, up nearly 14% at this juncture although MCX is, alas, limit down again. (Another $1.5 million loss to NYX is presumably water under the bridge at this stage).

Shreekant Javalgekar, CMD of MCX has stated today: ”MCX and NSEL are totally different entities with no financial commitments or exposure to each other whatsoever. MCX is an extremely sound regulated entity. It has a strong debt-free Balance Sheet with a net worth in excess of Rs 12 billion (USD 195 mln) as on June 30, 2013.’

Right now shareholders seem to be panicked that just as NSEL was closed, regulators may close MCX. Equally, the Indian market is awash with speculation FTI will be forced to sell their 24% stake in MCX but this raises the problem of to whom, as post Jalan Committee rules are highly restrictive on trying to hold more than 5% and that makes nearly 30% of the exchange potentially on the market including the NYSE stake which could be difficult to mop up in short order. Equally given the apparent disappearance of the settlement guarantee fund at NSEL there may be worries a similar hole could somehow emerge at MCX…

In an interesting aside, Raghuram Rajan (ex IMF Chief Economist) will be the new head of the Indian Central Bank. Memorably he foresaw the 2007-8 market meltdown which really upset Larry Summers (wonder whatever happened to him?). Rajan has been volubly pro foreign investment in India (hooray!).

Back to NSEL: as posited by NDTV “Why Jignesh Shah Failed to Convince the Street”, 3 key questions arise which so far as I am aware have not yet clearly been answered:

1) Whether NSEL has adequate stocks in its warehouses to cover a potential default by plant owners.

2) How NSEL’s settlement guarantee fund declined from Rs. 800 crore to Rs. 60 crore in a matter of days without a similar decline in payout obligations.

3) Why NSEL’s risk apparatus failed to detect the current scenario.

National Spot Exchange: What Went Wrong
Wall Street Journal (blog)

PLY: The Indian blog of WSJ succinctly explains recent events…

FMC wants information on sellers before NSEL shutdown
The Economic Times

The commodities market regulator Forward Markets Commission (FMC) has asked NSEL to disclose the names of all investors who had unwound their positions in the last few weeks leading to the suspension of settlement on July 31.

The pullout by some of the investors, who possibly had knowledge that the exchange would stop functioning by the end of the month, shrank the fund lying with the exchange from over Rs 800 crore (USD 130.4 mln) to Rs 60 crore (USD 9.78 mln).

PLY: FMC says “please answer question 2.”

NSEL Crisis: Rush To Turn E-Gold Into Physical Form
The Economic Times

The suspension of trading in e-series contracts in precious and base metals by crisis-hit NSEL has sparked a scramble among investors to convert demat certificates into physical delivery: average daily turnover in the e-series segment was around Rs 100-200 crore (USD 16-32 mln).

“Clients are unable to sell their demat certificate after NSEL stopped its trading, the only option is to convert it into delivery,” a Mumbai-based broker said.

Govt May Ask Sebi To Regulate Spot Exchanges
The Financial Express

The government, as an interim measure, may hand over the regulation of spot exchanges to stock market regulator SEBI in the aftermath of the controversy surrounding NSEL.

PLY: Back to the future? Pre-2004 the Wajahat Habibullah committee had recommended putting commodity exchanges under Sebi on the premise that the products being offered on various spot exchanges were really complex financial products. Any such move could be discerned as bad for Jignesh Shah and FTI given the historically very poor (often litigious) relations between them.


Warsaw SE Announces Introduction Of WIG30 & WIG30TR

From 23 September 2013, WSE will start publishing new WIG30 and WIG30TR indices. WIG30 index will include the 30 largest and most liquid companies on WSE’s Main Market.

PLY: The WIG20 is maintained but clearly WSE anticipate the 30 index will become the benchmark as their exchange grows. Interesting to see plans to produce 50 and 100 data from March 2014.

Warsaw SE Introduces New Multiplier For WIG20 Futures

PLY: Tick size growing from 20 PLN to 20 PLN for contracts launched from September this year, better value for traders…

Career Paths

Former UBS MTF Chief Robert Barnes To Join Turquoise
banking technology

PLY: Turquoise Chairman David Lester is filling the vacancy created by Natan Tiefenbrun’s resignation with a hugely popular figure in the industry, the genial Doctor Robert Barnes. As the founding boss of the highly successful UBS MTF it will be interesting to see how Robert sits in the LSE operation. Turquoise has about 8.01% of pan-European market share with a lit and dark book and trailing market leader BATS CHi-X with 18.03%.

Personal delight at this hire, Robert is a good man and I really wish him every success in his exciting new position. Good choice David Lester!

Brennan Warble Joins Liquidnet As Head Of US Sales

Brennan Warble has joined the company as Head of US Sales and a member of the global leadership team effective August 5th.

Share Notes

GFI: Michael Gooch Sells 100,000 Shares

GFI Chairman Michael Gooch sold 100,000 shares on the open market Monday, August 5th at an average price of $3.99, for a total value of $399,000.00. The insider now directly owns 193,024 shares.

Schwab EVP Unloads $770,802.56 In Stock

Charles Schwab EVP Carrie Dwyer sold 34,016 shares of the company’s stock on Friday, August 2nd at an average price of $22.66, for a total transaction of $770,802.56.

Interactive Brokers Group SVP Unloads $32,780 In Stock

IBKR SVP Milan Galik sold 2,000 shares on Friday, August 2nd at an average price of $16.39, for a total transaction of $32,780.00. He now directly owns 826,604 shares of the company’s stock.

Analyst Notes

CBOE Holdings price target raised from $35.00 to $42.00 at Credit Suisse

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.


Brazilian Platform Queremos!
Crowdfund Insider

Queremos! – a crowdfunding site for concerts – has successfully organized many concerts in Brazil. The platform was founded in 2010 by five music lovers who discovered that it was difficult to get concerts scheduled in their home town of Rio.

Other stories

East African Bourses Push For Multi-currency IPOs
Africa Review

Securities and stock market intermediaries across the five-member East African Community plan to introduce multi-currency denominated initial public offerings (IPO) and single licences for stockbrokers and investment banks as reforms to integrate the region’s capital markets begin.

The Nairobi Securities Exchange (NSE), Uganda Securities Exchange (USE), Dar es Salaam Stock Exchange (DSE), Rwanda Stock Exchange (RSE) and Kenya’s CDSC have also put forth a proposal for a single stockbroker licence.

PLY: Excellent, pragmatic integration manoeuvres to encourage brokers, issuers and investors alike.

Second Life For Government Bond Futures
China Economic Review

The global financial crisis cast a large shadow over the Chinese financial system, prompting already conservative regulators to adopt a more rigorous, and by extension slower approach to reform. Yet there are also skeletons from China’s own financial past that haunt officials.

On February 23, 1995, just eight minutes before the close of trading on the Shanghai Stock Exchange, an incredible action was put into motion that resulted in China’s biggest financial scandal to date.

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