August 1 2014

elb2A results frenzy leaves us with disappointment at BME, CBOE and CME, no great surprise at GFI although BGC looks encouraging as Sungard is flat while Warsaw does remarkably well despite government manipulation. Elsewhere, Jignesh Shah spends first anniversary of NSEL crisis breaking in jail with bail (and charge sheet!) to be discussed August 5th.

However the blockbuster story festering right now is the macro news that new EC President Juncker, is looking at creating a Financial Services Directorate – in other words a pure anti-capitalist bureaucratic layer to add on top of the EU’s ongoing desire to become the new third world. How many years before the dialling code for London’s financial centre starts +65…? Not many at this rate unless the British government learns how to, well, govern.

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: CME GFI & the New IDB Paradigm

New: NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

Public Markets

CME Q2 2014 Financial Results
CME

Q2 2014 Highlights

Total Revenues $731.6 mln, down 10.3%
Operating Income $412 mln, down 18%
Net Income $263.8 mln, 15.2%
EPS (diluted) $0.79

H1 2014 Highlights

Total Revenues $1,509 mln, down 1.67%
Operating Income $ 866.5 mln, down 5.1%
Net Income $530.4 mln, down 3.3%
EPS (diluted) $1.58

PLY: One could argue that if only the outside world remained as volatile as some of the historic internal politics at CME, their profits would be bounteous.

CBOE Q2 Financial Results
CBOE

Q2 2014 Highlights

Operating Revenue $143.9 mln, down 5%
GAAP Net Income Allocated to Common Stockholders $42.6 mln, down 6%
Diluted EPS of $0.50, down 4%
Adjusted Net Income Allocated to Common Stockholders of $42.6 mln, down 9%
Adjusted Diluted EPS of $0.50, down 7 %

PLY: A case of whither the ViX whither the CBOE’s results? CBOE remains a franchise stuck between a rock and a hard place: Not big enough to be a department store but too big to be a boutique. It has done well to elbow its way this far but if a predominantly equity options exchange is seeing profits decline as the Dow has hit new highs, that is a tad worrying – not necessarily just for CBOE either…

BME Posts H1 Net Profit Of €83.7 Million, Up 16.3% Y/Y
MondoVisione

Highlights

H1 revenue €169.5 million, up 10.5%
Q2 net profit €41.5 million while revenue reached €83.5 million (consensus: €62.8MM), posting growth rates of 6.5% and 4% respectively.

PLY: As the Spanish economy continues its dead cat bounce without addressing any of its underlying ills, the BME increased profits but it wasn’t good enough for even the BME consensus estimates. BME remains a business in a tight spot. Their ongoing reluctance to definitively endorse the EU’s many regulations leaves the market concerned that competition will soon erode what advantage they may once have had while FTT worries as well as the parlous state of the Spanish economy unfortunately makes BME a rather bulky also ran in European bourses but not one which is immediately palatable as an investment, particularly given the clear absence of a strategy to relieve the bourse of many threats.

WSE Q2 2014 Financial Results
WSE

Highlights

Total revenue: PLN 69.3 mln ($22.21 mln), an increase of 7.3% year on year
EBITDA: PLN 32.3 mln ($10.3 mln), an increase of 2.7% YoY
Net profit: PLN 20.4 mln ($6.53 mln), a decrease of 20.1% YoY
EPS: PLN 0.48 (PLN 0.40 in Q2 2013) ($0.15)
Dividend for 2013: PLN 1.2 per share ($ 0.38)

PLY: Adam Maciejewski is to be applauded for his role as CEO in bringing these results in at a time when the government’s Machiavellian machine was actively undermining him. These results may prove an interesting benchmark as the last numbers before the GPW indulges in the long descent into value destructive hell of a merger with the Vienna Exchange and its satellites.

GFI Group Q2 2014 Financial Results
GFI Group

Q2 2014 Highlights

Total revenues $218.1 mln, down 10%
Net revenues $ 186.3 mln, down 6%
Net Income $ (9.77 mln)
EPS (diluted) $ (0.78)

H1 2014 Highlights

Total revenues $458.8 mln, down 5.7%
Net revenues $ 388.8 mln, down 2.77%
Net Income $ (9.37 mln)
EPS (diluted) $ (0.76)

PLY: Arguably these don’t suck as much as they might have done given recent IDB issues. However the next generation GFI Group will now be the focus as discussed here yesterday and in our latest Premium post CME GFI & the New IDB Paradigm.

BGC Partners Q2 Financial Results
BGC Partners

Q2 2014 Highlights

Revenues for distributable earnings $430.3 mln, down 8.7%
Adjusted EBITDA $63.9 mln, down 91.1%
Revenues (GAAP) $417.6 mln, down 65%
GAAP net income (loss) for fully diluted shares $11.1 mln, down 84.1%
EPS (GAAP net income per fully diluted share) $0.03, down 83.3%

H1 2014 Highlights

Revenues (GAAP) $857.8 mln, down 47%
Consolidated net income $21.8 mln, down 84.1%
EPS (GAAP net income per fully diluted share) $0.07, down 70%

PLY: The eSpeed sale continues to impact year on year but the numbers here look encouraging against the background of the overall Dodd – EMIR – Frank shuffle.

ITG Q2 Financial Results
ITG

Q2 2014 Highlights

Total revenues $138.4 mln, down 0.6%
Net income $ 12.92 mln, up 154%
EPS (diluted) $0.35, up 169%

H1 2014 Highlights

Total revenues $276.07 mln, up 1.74%
Net income $ 26.5 mln, up 93%
EPS (diluted) $0.72, up 100%

PLY: I would have thought this was salad days for the Institutional Liquidity Platform business so it is surprising that ITG have slipped this quarter.

SunGard Q2 Financial Results
SunGard

Q2 2014 Highlights

Revenue $673 mln, flat YoY (down 1% adjusting for currency)
Operating income $77 mln, down 16%
Adjusted EBITDA $159 mln, down 12%

PLY: Just in as we rush to pixel: Sungard not caught in the eye of the Dodd-EMIR-Frank storm but still struggling to grow.

Warsaw To Present Stance On Tie-Up With Vienna Bourse Soon
Reuters

WSE aims to present its stance on a tie-up with Vienna bourse operator CEESEG within weeks, newly appointed CEO Pawel Tamborski said on Thursday:

“A representative of the biggest shareholder expects a relatively quick analysis and information, which would allow us to make a decision.Cooperation with Vienna is a serious option and requires analysis. I expect to provide shareholders with detailed information within a few weeks.”

PLY: There can be few doubts government puppet CEO Tamborski is expected to deliver the deal which Adam Maciejewski (to his eternal credit) didn’t. The Viennese banks can hardly believe their luck what utter suckers the Polish government are.

Further discussions on the WSE-CEESEG merger here and here.

See our Premium post Poland At the Crossroads and Warsaw’s Great Leap Backwards.

Venkat Chary Notice To PwC On MCX Audit
Business Standard

PwC has received a legal notice from Venkat Chary, former chairman of MCX on the special audit report it gave last year on the latter entity. The report was given in April last year to FMC, which had commissioned it in the wake of the payments scam at the spot exchange promoted by FTIL; the latter was also anchor investor in MCX. It was a critical report and had named Venkat Chary, now non-executive chairman of FTIL, as one of the key management personnel of MCX.

CME Submits Trade Repository Application To OSC
Advisor

The OSC has published for a 30-day comment period the applications by the Chicago Mercantile Exchange Inc., DTCC Data Repository (U.S.) LLC and Ice Trade Vault, LLC for designation as trade repositories in Ontario. OSC staff have coordinated with staff of the Autorités des Marchés Financiers and the Manitoba Securities Commission in reviewing the applications that are also filed in Québec and Manitoba, and will continue to work with them in finalizing the designation.

PLY: Which reminds me why Canada really needs a single national market regulator as state by state is remarkably bureaucratic.

European Stock Exchanges Interested In BSE Privatization
Novinite

Three large European stock exchanges showed interest in the privatization of the Bulgarian SE (BSE), said former Vice PM Daniela Bobeva on Wednesday. She did not say which were the candidates for the stock exchange. The government’s Privatization Agency said in November that it planned to put up for sale its stakes of 50.05% in BSE and 43.7% in the Central Depository. Earlier attempts for the privatization of the BSE by the GERB government failed. Eventual candidates were the LSE, DB1 and CEESEG.

PLY: I am not convinced the interest is serious. Clearly DB1 would like to keep their software client running while CEESEG are always going to peruse the documents for any sale east of the Oder river while LSE and NASDAQ OMX habitually do a spot of DD on any possible deal. However big exchange businesses rarely consummate deals for tiny adolescent bourses. Sofia has huge potential and a good CEO in Ivan Takev but it is too small to reasonably roll into a major exchange group – which is where the Bulgarian government are going wrong with their “privatisation” strategy. The Polish government failed with Warsaw after all, and that did have traction before losing its way recently. I fear the government are flogging a dead horse trying to sell to a big exchange group – besides better national economic value will come from being a dynamically managed entity not just a branch office of a parent who barely notice the bourse’s balance sheet beside the group stationary bill.

Massad Sees End To US-EU Clearing Dispute (subscription)
Gina Chon – Financial Times

New CFTC Chairman Timothy Massad, is committed to resolving a transatlantic dispute over compliance standards for clearing houses, nothing he had already been to Europe twice since he took office less than two months ago.

PLY: Here’s hoping.

New U.S. CFTC Head Says He Will Be Tough Cop, Tweak Rules
Douwe Miedema – Reuters

The new head of CFTC on Thursday pledged he would be a tough cop now that the agency has largely finished a raft of new rules to oversee the $710 trillion global swaps market.

“One of my priorities will be to make sure these markets still work very well for the commercial companies, the non-financial companies, who had nothing to do with the crisis and who rely on this market very heavily,” Massad said.

PLY: Tough on banks will create better long run markets, whereas tough on markets will just create poverty, speaking of which here are the world’s poverty creation experts, the EU:

If Britain Doesn’t Keep Juncker’s Hands Off The City, We’ll All Be Much Poorer
Allister Heath – Daily Telegraph

Enough is enough. The City of London is Britain’s most important industry and we can no longer allow the European Union to trample all over it. Over the past few years, we have all too often turned a blind eye to the EU’s increasingly vexatious attacks on financial firms, largely because few politicians had the self-confidence to be seen to be taking the side of bankers. But with the Brussels machine now gearing up for an intensification of the hostilities, it is time for the British Government to become much more forceful in its defence of our economic interests.

PLY: In a week when the gutless old Etonian hippy (masquerading as Prime Minister) chillaxed the UK into bearing the brunt of sanctions against Russia – clearly not being able to bank in W1 will bring a nation to its knees in the same way delivering a French warship clearly doesn’t (you can’t make this up)…Now the wrong man for the job Juncker has made it clear he wants to induce corporate socialism across all EU institutions and destroy the City of London as well as the other financial markets. Or maybe he just hopes the British will leave – clearly there is no tangible future for any free trading nation, even before the Euro crisis tips into its next phase. Tragic news for Europe, the Brussels Soviet is clearly intent on destroying the economy.

Private Markets

BIST: Love In A Time Of Cholera
Francesca Carnevale – FTSE Global Markets

Borsa Istanbul (BIST), has been on the rise in recent weeks following a turbulent few months. Francesca Carnevale spoke to Huseyin Zafer, the exchange’s director of finance and communications about its near term outlook and strategy.

PLY: Not a bad review of the BIST’s initiatives, albeit pretty one-sided in the spirit of gutless vanity magazines.

Thailand To Launch SME Trading Platform
Derek Au – Asia Asset Management

Thailand will launch a new trading board later this year with the intention of giving investors access to the country’s substantial SME sector.

Vorapol Socatiyanurak, secretary general of the SEC, recently declared that the first batch of between ten and twenty SME equities will begin trading on the board this year.

Mt. Gox, Ripple Founder Unveils Stellar, A New Digital Currency Project (subscription)
Michael J. Casey & Paul Vigna – Wall Street Journal

Jed McCaleb, the reclusive bitcoin pioneer who founded both Mt. Gox and Ripple, unveiled his latest cryptocurrency project on Thursday, a user-friendly product that will encourage mainstream adoption of digital money.

Mr. McCaleb’s new project is a network system called Stellar that promises a bridge between the virtual and traditional currency worlds . It will use a decentralized network of computers run by so-called “gateway” institutions – banks and other financial firms — to cheaply and efficiently manage and authenticate a public record of transactions. Those gateways provide the exchange services that allow outside customers to send money to others anywhere in the world.

PLY: A fascinating new project which I would discuss more but alas despite an invitation, when I endeavoured to login last night, the servers appeared to have gone down in the excitement… Teething troubles aside this is a fascinating initiative.

Dividend News

Given the pending transaction with CME, GFI’s dividend has been suspended at this time.

BGC Partners’ BoD declared a quarterly cash dividend of $0.12 per share payable on September 5, 2014 to Class A and Class B common stockholders of records of August 22, 2014. The ex-dividend date will be August 20, 2014. The Board also authorized a total stock and unit repurchase and redemption program of $250 million.

BME BoE agreed to distribute on September 12 its first interim dividend against 2014 earnings with a value of €33.3 million, that is, a gross €0.40 per share.

This dividend represents the same amount than that of the first interim dividend paid in September 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is slightly off while FTIL loses another 5% from last week’s gains. Jignesh Shah meanwhile resides in jail until at least August 5th as a charge sheet is looming:

HC To Study Chargesheet Then Decide On Jignesh Shah’s Bail
Business Standard

Economic Offences wing (EOW) of Mumbai Police, which is probing the case, made a statement before the court saying the investigating agency intended to file chargesheet against Shah and others on or before August 4 which the Bombay High Court will investigate before deciding on bail for Jignesh Shah.

Justice Abhay Thipsay, who had earlier reserved order on Shah’s bail petition, asked EOW to file a copy of chargesheet in a trial court and also before the high court so that he can go through it and decide on Shah’s bail plea. Accordingly, the matter has been posted to August 5 when the court would consider the material given in the chargesheet against Shah and other co-accused.

A large number of investors were present in the jam-packed courtroom during the hearing.

NSEL Scam: Anand Rathi Commodities, Motilal Oswal To Face Another Round Of Interrogation
Ram Sahgal – The Economic Times

Anand Rathi Commodities, Motilal Oswal and around eight other brokers will shortly be summoned for further interrogation by the economic offences wing (EOW) of Mumbai Police as the police-appointed forensic auditor is set to submit interim reports on their role in the NSEL scam.

NSEL Scam: How Jignesh Shah Went From Dr Jekyll To Mr Hyde
Moneycontrol

On August 1, exactly a year ago, Indian stock markets were sent into a tizzy as the Jignesh Shah-backed FTIL plummeted over 60% as investors caught the whiff of the Rs 5000-crore ($900 mln) scam.

Technology

A Look At Charles Schwab’s Approach To Technology
Luke Jacobi – Benzinga

In a series examining how brokerages are managing the role technology plays in their clients’ lives, Benzinga reached out to Charles Schwab. With a discount brokerage business dating back to 1975, the firm has thrived through myriad market and technology changes.

Products

CME Eyes FX Benchmarks And European Rates (subscription)
Luke Jeffs – FOW

CME has hinted it could pitch to become the administrator to the global foreign exchange market if such a role is created and outlined a longer-term plan to launch interest rate futures on CME Europe.

EI reported on July 14th CME & Thomson Reuters are confirmed as winners of the London Silver Fix bid and EI reported on July 18th that CME is interested, together with Thomson Reuters, to administer the gold fix too.

PLY: Clearly an intriguing prospect although I am not sure the world of forex benefits from a single global administrator? However it is an intriguing idea – a sort of blockchain for analogue money of a sort…

U.S. Grain Firms Ask CME To Expand Wheat Delivery Capacity
Reuters

CME said four grain companies have asked to increase by 12.6 million bushels the amount of wheat allowable in storage for delivery against CME’s benchmark futures contract.

NSE To Launch New 10-Year Bond Futures On Monday
Reuters

National Stock Exchange (NSE) said it would launch one, two and three-month interest rate futures (IRF) contracts based on the new 10-year 2024 bond starting on Monday.

Rival BSE Ltd could also launch IRF contracts on Monday based on the 10-year bond expected to become India’s next benchmark, a spokesman for the exchange had earlier told Reuters.

MCX-SX Currency Segment Faces Exodus
Rutam Vora – The Hindu Business Line

In the last six months, as many as 26 members have surrendered their MCX-SX memberships, while several others are in the process.

PLY: A crisis continues to develop as the only viable business line at MCX-SX is in danger of disappearing. Worrying times, this market needs fundamental restructuring but it can thrive given suitable shareholder backing and management.

Zimbabwe: ZSE Mulls Bond Market
Phillimon Mhlanga – allAfrica

Zimbabwe Stock Exchange (ZSE) is planning to introduce a bond market before the end of this year. Alban Chirume, the stock exchange’s CEO, told C&M at the Institute of Chartered Accountants of Zimbabwe’s Winter School in Victoria Falls that government, quasi-government institutions and corporate institutions would be mobilised to raise cash through bonds.

Indexes

STOXX Announces Compliance With IOSCO Principles For Financial Benchmarks
MondoVisione

STOXX declared its compliance with IOSCO’s Principles for Financial Benchmarks, and published its “Letter of Compliance with the IOSCO Principles for Financial Benchmarks” on the company’s website.

Quandl To Distribute Nasdaq OMX Index Data For Free (subscription)
Ivy Schmerken – Wall Street & Technology

Data portal Quandl forms its first partnership with Nasdaq OMX, providing global indexes to a younger generation of financial analysts.

Quandl, the Toronto-based search engine for economic and financial data, is now distributing Nasdaq OMX index data through its portal, free of charge.

Career Paths

Mr Damian Roche was appointed as NED of ASX.

This appointment continues the Board renewal program outlined at ASX’s 2013 AGM. This program commenced with the appointments of Ms Heather Ridout and Dr Ken Henry as directors in FY13 and continued with the appointment of Mr Dominic Stevens in December 2013. Mr Roche and Mr Stevens will both stand for election at ASX’s AGM on 23 September 2014 along with Mr Peter Warne, who will stand for re-election at the AGM.

Mr Roche brings 20 years of experience in global investment banks to the ASX Board. Prior to this appointment, Mr Roche was a member of the global Corporate and Investment Bank Operating Committee for J.P. Morgan where he worked for the past 10 years, most recently as head of Markets and Investor Services Sales and Distribution for Asia Pacific, based in Hong Kong.

ASX press release here.

MV reports that Eagle Investment Systems LLC, a leading provider of financial services technology and a subsidiary of BNY Mellon, announced the promotion of Greg Farrington to Head of Sales, Americas.

Farrington will report to Mal Cullen, MD, head of the Americas & Eagle ACCESS.

The firm has also recently promoted John Boggis to Head of Sales, Europe, Middle East, Africa & Asia Pacific. Boggis has been with the company for four years, securing a number of key global contracts for Eagle in that period. Prior to Eagle, he held senior sales roles with SimCorp, FactSet and Thomson Financial. Boggis reports to John Legrand, MD, head of EMEA and APAC.

Redline Trading Solutions, the premier provider of ultra-low latency market data and order execution systems, announced that Richard J. Harrington has joined the BoD of the company.

The Securities and Futures Commission (SFC) welcomes the appointment by the Financial Secretary of Dr William Wong Ming-fung, SC and the re-appointment of Ms Teresa Ko Yuk-yin as NEDs for a term of two years effective from 1 August 2014.

Financial Calendar

Next week

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

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

Share Notes

Interactive Brokers SVP Milan Galik sold 1,800 shares Monday, July 28th at an average price of $22.54 (bargain $40,572.00). He now owns 752,717 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Other Stories

ESMA: MiFID II Consultation Period Ends On 1 August
MondoVisione

ESMA consultation period on MiFID II is due to close at midnight on Friday 1 August. Interested parties should submit their responses to the consultation and discussion papers via ESMA’s website.

ICE Benchmark Administration Launches Error Policy Market Consultation
MondoVisione

ICE Benchmark Administration (IBA) is launching a paper for consultation on a policy to provide transparency in the event that an error is discovered in the publication of ICE LIBOR.

A feedback questionnaire has been issued for completion on or before Friday 19 September 2014.

TASE BoD Aligns With International Standards & Strengthens Risk Management Framework
MondoVisione

The Tel Aviv Stock Exchange (TASE) BoD approved a series of decisions designed to consolidate the risk management framework employed in the TASE group at its last meeting. The approved measures will strengthen the group’s ability to identify and respond to risks inherent in TASE’s activity and business environment in real time and will conform with requisite international standards and best practices.

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