August 09 2013

elb2 Last bulletin of a frantic week. If you haven’t been watching the Indian NSEL crisis, then anybody with an interest in the highly flawed nature of FTT ought to pay attention today.

MCX is suffering massive drawdowns of clearing collateral as brokers opt out of the commodity market where volumes have tumbled since an Indian commodity transaction tax was introduced. Europe, where some demented anti-capitalist ideologues are still proposing to turn the EU aback to the dark ages ought to take note.

Then again it’s not as if there isn’t clear evidence from the market share demise of Paris and the despatch of liquidity from Italy to London etc. However anybody looks at it, and indeed as the European Commission’s own papers note, transaction taxes are the death knell of freedom to invest and ultimately will kill prosperity for every citizen in the lands blighted with these particularly vile taxes.

As I remarked at the FESE Convention: End the Uncertainty Now and kill this highly toxic threat to our investment future.

Elsewhere we have another bumper day (can’t believe it’s August!) with results from BM&F, an interesting position paper from Aequitas, Duncan N interview, a dust up over EuroStoxx, BVB meets shareholders and a great deal more, read on, it’s worth it:

Public Markets

BM&F BOVESPA Announces Q2 Results

Main highlights for 2Q13 results:

Adjusted net income totaled R$ 469.6 million (USD 205.96 mln), up 11.0% from 2Q12

Press Release here.

PLY: A sound increase in the Brazilian operator’s profits. Of course a slightly double edged sword as this is only going to further encourage the various competitors intending to enter the market…

NYX Duncan Niederauer Interview

Q. You’re being bought by ICE. How does a 13-year-old futures exchange make a play for a 220-year-old American institution?

PLY: Frankly this interview is a bit of a disappointment. It surmises the laconic way in which NYX has ambled forward in recent years. When some were loudly trumpeting “it’s a derivatives world” NYSE was rooted in equities while its European empire of dysfunction is a footnote in these remarks. Now apparently derivatives growth was primarily only obvious with 20:20 hindsight. What utter defeatist rubbish. Second time this week (first was ASX) I have been genuinely annoyed by the abject mediocrity of remarks by a public exchange CEO.

What I read between the lines are emollient comments made easier by a success fee for delivering NYSE into the arms of a purchaser by a business which had almost entirely lost its sense of purpose in the past year or two bogged down by just too many legacy issues eating at the core of any remaining attempt to create a dynamic business. A sad end to what began promisingly under a buttonwood tree in 1792.

Note to Jeff: We know you have significant incentives already but please spare no prisoners, NYSE must be torn apart to build a proper business as opposed to a mere monopolistic country club franchise. Top to bottom, wholesale change, please.

PowerSecure To Transfer Common Stock Listing To NYSE
The Wall Street Journal

PLY: At least it is not all bad news: NYX continues a good year for taking listings from NASDAQ as PowerSecure (POWR) will swap to the ‘Big Board.’

CBOE Bars Regulatory Staff From Stock-based Pay

Having paid a $6 million fine in June for failing to properly oversee its own marketplace, CBOE has barred regulatory staff from receiving compensation tied to the company’s soaring stock price.

PLY: I fully understand why CBOE made this decision but I would contend the underlying regulatory er, “logic” is highly flawed. Can any one or even small number of poor regulatory judgements be created to really boost long-term shareholder value? I frankly doubt it. Would any rational regulatory staffer do so given the risk of being caught? Nope, can’t see that either. Overly prescriptive regulation to make headlines is always poor policy.

SEC Says Eurex Made Missteps In Handling Of Its Futures Index

PLY: An interesting case and one where some sensible regulatory pragmatism is apparent. Essentially, EUREX’s Euro STOXX Banks Index dipped from being broad to narrow under US index rules and hence there was the possibility of all manner of vile penalties. Fortunately, the SEC stepped back from prescriptive penalties here which is a logical outcome. Pity they didn’t weigh the consequences before CBOE’s regulatory move.

ICE-NYSE Unexpected Merger Success
The Street

PLY: Never thought I would see Cramer go politically correct but he too refers to ICE eating NYX whole as a “merger.” Yeah, right. As to an ongoing exchange urge to merge? I would argue that is a media racket rather than an economic rationale. However, asides from these pervasive media comments, a good article.

“Staid” describes NYSE Euronext somewhat generously and the article points out that the merger is progressing better than many expected. I’m not in that camp,

I always expected rapid progress and am awaiting an acceleration post close. Progress is definitely good but it was always to be expected that the arrival of adult supervision at NYX would bring results, that’s why I liked the DB deal too. After all, the bars of Cannon Street have been full of progressive leaving drinks for months now: that helps to make the bloated bureaucracy something closer to a corporate entity alone.

Lawsuits To Air LME’s Dirty Laundry

Lawsuits alleging aluminium price fixing by big banks will shine an uncomfortable light on the role played by the LME, suggesting that the murky world of metal trading is likely to attract more attention from the authorities.

PLY: “Murky” is one of those words which is challenging to spin positively. Every time LME has a problem (remember tin?) these epithets are rapidly applied. Now this is no tin crisis (the modern corollary is the NSEL India agri version – see below), however now regulators have been prompted by political dissent there will be greater regulatory oversight…

Bucharest SE has Informal Consultations With Members

PLY: A quorum proving difficult to achieve for BVB Meetings, the board held informal meetings about the future of the exchange with some shareholders.

Topics included the (yet to be confirmed by the regulator) incoming CEO Ludwik Sobolewski, a change to dual management boards and what to do about CCP for BVB’s tiny derivatives market now SIBEX are going Greek…

Private Markets

Aequitas Innovations For Fair Markets

PLY: An interesting position paper outlining the thinking behind Aequitas as it challenges to change the Canadian marketplace. The paper itself is well worth reading and can be downloaded here.

Seychelles SE Opens

Sacos Group, a formerly state-owned insurance and property investment business, became the first company to start trading its shares on the Seychelles’ stock exchange today.

PLY: Welcome to the world of bourses, another delightfully sunny island for exchange trading.

India: PACS In Andhra Pradesh To Link With NCDEX Spot

The warehouses of Primary Agriculture Cooperative Societies (PACS) in Mahabubnagar and Kurnool districts of Andhra Pradesh were linked with the NCDEX spot exchange on 5 August 2013.

PLY: Progress to link co-ops to the main market and indeed induce a better route from subsistence to genuine sustainability for Indian farmers.

Dividend News

BM&F BOVESPA approved R$280.7 million in dividends to be paid on September 30, 2013 based on shareholders’ position dated August 21, 2013, totaling 80% of GAAP net income in 2Q13.

Special Section: FTI, NSEL, India at the Crossroads

PLY: The collateral seeping out of MCX is a big issue where it never rains but it pours. The new transaction tax on commodities is killing business for MCX/NCDEX et al while NSEL tries to recover from its woes.

As we go to press, FTI is up about 6% today, MCX has fallen by 2%.

Meanwhile news emerges of shareholders selling MCX:

Birla And Tata Sell MCX As Crisis Roils Group
The Economic Times

Birla Sun Life Asset Management sold all its holding in FTI and MCX (amount not disclosed but less than 1% of their $13 billion portfolio) while Tata Asset Management sold 185,493 shares in MCX on July 31st.

PLY: Clearly local institutions were very early sellers. On 31 July MCX was declining much of the day, clearly as the selling mounted (range 635 – 691.95) closing at 638.15 Rupees, right now it’s trading about 295. Time to buy back in methinks, speaking of which…

HDFC Mutual Fund Picks 0.6% Stake In MCX

HDFC Mutual Fund has picked 0.6% stake in Multi Commodity Exchange (MCX) on Thursday for Rs 89.73 million (USD 1.47 mln). It bought 0.3 million shares under HDFC Prudence Fund at price of Rs 293.25 (USD 4.83) on the NSE.

PLY: The bottom pickers are here and I rather like this trade. True, it could be a slightly regulatory driven binary option but then again can the FMC or any regulator really kill MCX? I doubt it and the current share price does price in a lot of mayhem, even with the destructive commodity transaction tax MCX has incredible value and India’s farmers need the exchange. If I was a foreign accredited person I would be spending my weekend on full Due Diligence.

MCX Sees Bank Guarantee Withdrawal By Brokers
Business Standard

MCX has started bearing the brunt of the commodity transaction tax (CTT), as well as the recent NSEL payment crisis..

According to industry sources, some brokers have withdrawn or reduced their bank guarantees to the exchange. Bank guarantees are given by brokers to the exchange to trade on the platform. Typically, a broker pays a guarantee of Rs 100 crore (USD 16.47 mln) for a trading position of Rs 1,000 crore (USD 164.79 mln) or more. Brokers have only kept guarantees for which they have open positions. According to sources, a number of brokers, including some leading ones, have taken this decision.

PLY: This clearly has been helping drive the market down. Institutions clearly got wind of the withdrawals prompting their sales and in the past few days any such news has been clearly a means to induce further selling as panic contagion was widespread.

Government Gives FMC Power To Ensure NSEL Settles Dues
The Economic Times

The government on Wednesday issued a notification empowering the commodity derivatives regulator Forward Market Commission (FMC) to look into the Rs 5,600 (USD 922.87 mln) crore-settlement issue between National Spot Exchange (NSEL) and investors.

Buyers’ Stocks Enough To Cover Dues: NSEL
The Economic Times

NSEL on Wednesday released the complete list of buyers and the stocks held by them in a bid to calm the panic in the market since the exchange suspended trading on July 31.

Put together, the 21 buyers in the list have an outstanding liability of Rs 5,580 crore (USD 919.57 mln), against which stocks tendered by them in exchange warehouses are worth Rs 6,063 crore (USD 999.17 mln), according to the National Spot Exchange.

PLY: We’ll be keeping an eye on what is collected and wish NSEL every success in resolving the issue asap.

Top Six NSEL Investors Owe 70% Of Total Dues
The Hindu Business Line

The top six investors in the beleaguered National Spot Exchange platform owe about Rs 3,925 crore (USD 646.83 mln) or 70 per cent of the total outstanding of Rs 5,599 crore (USD 922.7 mln).

These companies have goods worth Rs 4,155 crore (USD 684.73 mln) at the exchange accredited warehouses in Punjab, Haryana, Gujarat, Delhi and Andhra Pradesh. However, there are concerns over realising the same value if the exchange goes for auctioning the produce after the sellers are declared defaulters.

Speaking to Business Line, Ramesh Abhishek, Chairman, Forward Markets Commission, said it was entirely the responsibility of the exchange to safe keep and realise the worth of the goods in case of any default by the sellers.

NSEL’s Pro-rata Settlement Formula Worries Brokers
The Economic Times

Even as the Forward Markets Commission (FMC) tries to calm markets by ensuring settlement of dues running into thousands of crores on NSEL, brokers are concerned that clubbing of settlements and distribution of funds on a proportionate basis may not go down too well with some of their clients.

While eight entities have agreed to repay Rs 2,181 crore (USD 359.42 mln), 13 have said they will pay back 5% of their dues every week over the next 20 weeks while negotiations are on between the exchange and a few other borrowers to come to a solution.

How The NSEL Crisis Unfolded
The Hindu Business Line

Step-by-step — the inside story


MarketPrizm Adds HKEx To Colo Infrastructure
Automated Trader

MarketPrizm has expanded its Asia-Pacific mutualised DMA platform with the setup of low latency data and technology services at Hong Kong Exchanges and Clearing’s Hosting Data Centre.

Betfair Upgrades Fraudbusting Capability
Business Weekly

Online betting exchange Betfair has extended a partnership with Cambridge UK predictive technology business Featurespace to guard against fraud in millions of daily transactions as well as major sporting events such as the Grand National.

PLY: Betfair has been a consistent proponent of transparency in sports prediction markets and to that end has greatly aided the battle against fraud and fixing of results. Odd that so many regulators prefer cash betting with anonymity but that is clearly not related to how so many are government monopolies. Clearly not.


Chinese Fund Manager To Create Products Using FTSE/JSE Index

The Johannesburg Stock Exchange (JSE) has signed a letter of intent for an index product licence with Chinese fund manager GF Fund Management Co to create exchange traded funds (ETFs) based on the FTSE/JSE Top40 Index.

Indian ETF To Start By Q4
The Economic Times

India joins ETF bandwagon…

Career Paths

LME Head of Business Development, Chris Evans, has resigned.

Analyst Notes

LSE a “Hold” after share-price surge, UK Daily Telegraph’s “Questor”
Tullett Prebon Price Target Raised from GBX 300 to GBX 340 at Citigroup Inc. – “Neutral” rating

Questor Share Tip: London Stock Exchange Now A Hold
The Telegraph

PLY: A positive spin based on a sound track record of recent developments at LSE. Difficult to believe how backwards the exchange seemed only a matter of years ago. Despite his early political fumble in leaving the EU FESE group, CEO Xavier Rolet has made great strides in transforming LSE into a diverse business.

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.


Jamaican Crowd Funding Site May Be Good For Tech Start-ups

Techies in Jamaica are eyeing as a possible lifeline for startups in the island’s emerging tech industry.

Other stories

Broker Cops Fine Over High-Speed Trades
Business Day

PLY: A sorry tale of an institutional broker failing to manage HFT activity.

Why Are banks’ Physical Commodity Assets So Controversial? (subscription)
Financial News

PLY: As you probably can’t read this subscriber article either, let me help: The assets aren’t controversial at all per se: it’s the fact that banks appear to have been making monopolistic returns and making it difficult to withdraw stocks which have caused the problem. Warehousing on its own is a lovely commoditised return business whether in alloys, oil or data. The banks seem to have pushed their luck too far on this one.

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