August 12 2014

elb2BATS biggest US equity venue during July while Sino – HKEx through train is testing / arousing broker/exchange excitement and fear In equal measures. BOAT clients transition to Cinnober. Plus I have been writing about Bitcoin (again) and we also have news from Africa, Asia and across the world. It’s mid-summer but the snippets here are worth scrolling for…

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:

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

Public Markets

TPG Capital, General Atlantic, PE Kedaara Capital Eye Stake In IEX
Baiju Kalesh & Ram Sahgal – Economic Times

American private equity fund TPG Capital, General Atlantic and local player PE Kedaara Capital are amongst as many as nine prospective buyers have taken the bid document.

EI reported on July 22nd that FTIL appointed Axis Capital to look for a buyer for the 24.89% stake in IEX.

EI reported yesterday that Rakesh Jhunjhunwala is rumoured to have bought 4% of IEX.

Big Bull’s Net Worth Beats Market Cap Of 96% Of Listed Firms
Business Standard

Portfolio value of Rakesh Jhunjhunwala & family exceeds Rs 7,200 cr (USD 1.17 bln).

Rakesh Jhunjhunwala bought 2% of MCX from FTIL on July 9th and on July 16th he bought another 490k (0.96%) shares of MCX.

PLY: For those who ponder the spread of contemporary prosperity, hands up all those readers who had actually heard of Mr Jhunjhunwala before he began acquiring MCX shares last month?

I love globalisation, as Exchange Invest readers in over 150 countries today must already know!

Stock Connect Scheme Undergoes First Trial
Jennifer Li – Standard

The first trial of the Shanghai-Hong Kong Stock Connect took place in the mainland yesterday, with 11 Hong Kong-listed firms taking part ahead of the intended launch on October 13.

Brokers To Demand More Clarity Over Hong Kong-Shanghai Stock Trading (subscription)
Enoch Yiu – South China Morning Post

Shanghai Officials Meet With Hong Kong Brokers On ‘Through Train’ (subscription)
Jeanny Yu & Enoch Yiu – South China Morning Post

Brokers will press executives of the Shanghai SE to clarify the many regulatory restrictions Hong Kong investors face in trading on the mainland’s A-share market when the stock through train scheme begins in October.

The Shanghai-Hong Kong Stock Connect, or “through train” scheme to allow retail investors to trade shares across the border, subject to a quota, was announced in April.

Asian Exchanges Eye Hong Kong-Shanghai Trading Link (subscription)
Gregor Stuart Hunter, Kosaku Narioka & Kwanwoo Jun – Wall Street Journal

Amid already tepid trading volumes across the region, officials at exchanges in Asia are worried the Hong Kong-Shanghai link will leave less money for them if it proves successful and they don’t take measures to keep up. The trial program is due to launch in October and would create a combined market capitalization of $5.5 trillion, according to data from the World Federation of Exchanges.

PLY: Always worrying to see a spot of zero sum fallacy still prevalent amongst the world’s exchange executives – no wonder a few well run businesses can do so well in this sector against legacy mutuals.

Private Markets

BATS Global Markets Becomes Largest Equities Trading Venue In July
Adil Siddiqui – Forex Magnates

BATS, the operator of financial exchanges in the United States and Europe, has reported its July U.S. equities markets figures. In July its market share was 20.3% and in European equities its market share reached 21.5%, both figures rising on a MoM basis.

PLY: Plaudits to BATS on achieving another great milestone. Kudos too for marking it in a restrained and mature fashion.

MSE To Introduce A New System On Trading Currency Futures And options Contracts
Info Mongolia

MSE started developing regulations on the currency futures and options contracts.

Uganda Exchange To Get Rival
Emma Onyango – East African Business Week

ALT Xchange recently announced its intention to operate a securities and derivatives market, initially in Uganda, to service the East African region. ALTX Uganda will be a wholly owned subsidiary of the Mauritius-based ALTX Africa Group Ltd, and has already received approval from the Capital Markets Authority of Uganda to operate a securities exchange in Uganda.

EI reported on March 25th that ALTX gained its license in Uganda, with GMEX providing technology and business expertise.

CFTC’s Division Of Market Oversight Extends Conditional Time-Limited No-Action Relief To Australian-Based Trading Platform Yieldbroker Pty Limited
Mondo Visione

CFTC, DMO announced the issuance of a no-action letter extending the conditional time-limited relief provided in CFTC No-Action Letter No. 13-76 for Australian-based trading platform Yieldbroker. DMO will not recommend that the Commission take enforcement action against Yieldbroker for failure to register as a swap execution facility (SEF) under section 5h(a)(1) of the Commodity Exchange Act (Act) or Commission Regulation 37.3(a)(1), or against any market participants for use of, or other relationships with, Yieldbroker, for the period expiring November 15, 2014.

Check the SEFs list on the EI website – Here.

U.S. Watchdog Calls Bitcoin ‘Wild West’ Of Finance
Douwe Miedema – Reuters

Virtual currencies such as bitcoin are the “Wild West” of financial products because of risks including huge swings in exchange rates, the U.S. Consumer Financial Protection Bureau said on Monday.

“Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market,” CFPB Director Richard Cordray said in a statement.

PLY: The core delusion here is of course as surmised by Ronald Reagan: “I’m from the government and here to help.” Clearly many governments and other linear thinkers do not understand the cryptocurrency future, some more explanation is clearly required…oh hold on a second, what’s this:

Bitcoin: Baffling Or brilliant?
Patrick Young – RT

Governments are struggling…Understanding history might help them better appreciate the Copernican revolution in money.

PLY: As author, I clearly welcome feedback!

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is down 1%, FTIL flat as EOW arrests defaulters and concerns about creditor repayment continue…

FTIL Rakes In Cash, But This May Not Help NSEL Investors
Rajlakshmi Nirmal – Hindu Business Line

Even a year after NSEL crisis broke out, a majority of investors on the exchange are yet to receive settlement but Financial Technologies, the corporate promoter of NSEL, has managed to raise substantial cash through sale of stakes in the various exchange businesses it owns.

NSEL Fraud: Seven Executives Arrested
Khushboo Narayan – Livemint

EOW of the Mumbai Police on Monday arrested SEVEN executives of the defaulting borrowers of NSEL fraud.

The agency has arrested Kailash Aggarwal, director of Ark Imports Pvt. Ltd; Narayanam Nageswara Rao, managing director of NCS Sugars Ltd; Varun Gupta and Chandra Mohan Singhal, directors of Vimladevi Agrotech Ltd; Ghanta K. Rao, managing director of Spin-Cot Textiles Pvt. Ltd, Prashant Boorugu, managing director of Metkore Alloys and Industries Ltd and B.V.H. Prasad of Juggernaut Projects Ltd, an EOW official said.


BOAT Clients Move To Cinnober

All BOAT customers have now confirmed their future commitment to the service. Cinnober’s new BOAT division will continue to provide the only independent European trade reporting service, following the acquisition from Markit by Cinnober Financial Technology on 1st July this year.

PLY: Excellent work by Cinnober as they revitalise the BOAT franchise.

UKTI Plans Overseas Fintech Roadshow (subscription)
Anna Irrera – Financial News

Representatives from the business trade body plan to travel to countries including the US, India, Singapore, Germany, Scandinavia and Hong Kong in a bid to attract fintech companies to London. UKTI is looking to attract both established fintech providers and new, innovative startups.

The push reflects measures announced last week by UK Chancellor George Osborne aimed at helping London’s fintech sector prosper.

PLY: Interestingly the much feted UK fintech industry group has already run into some troubles gaining members…then again startups usually have better things to spend 50,000 GBP on at inception than industry associations.


TOCOM To Adopt Alternative Delivery Procedure For Oil Markets
Mondo Visione

TOCOM announced that it has received regulatory approval for ADP – providing for underlying commodity delivery under terms or conditions that differ from Exchange standards.

China’s Zhengzhou Commodity Exchange Starts Trading Ferro-Alloys Futures
Metal Bulletin

ZCE started trading ferro-silicon and silico-manganese futures on Friday August 8.

Career Paths

ITG named T. Kelley Millet, currently the CEO, Vice Chairman and Treasurer of Banca IMI Securities to Its Board of Directors.

Financial Calendar

This week

MCX India Q1 Financial Results
FTIL Q1 Financial Results
Markit Q2 Financial Results
SIBEX H1 2014 Financial Results
MOEX RUB 2.38 dividend payment

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

Analyst Notes

Zacks Restated Their “Underperform” Rating On ICE – $171.00 Target Price
JPMorgan Chase Reaffirmed Their “Overweight” Rating On ICE – $223.00 Target Price, Down From $230.00.
Keefe, Bruyette & Woods Reiterated Their “Outperform” Rating On ICE – $223.00 Target Price, Down From $232.00.
TD Securities Lowered Price Objective On TMX From C$59.00 To C$57.00 – “Hold” Rating
Zacks Lowered CBOE From “Neutral To “Underperform” – $46.00 Price Objective

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.


Zopa Hits $1B In Loans As P2P Lending Nibbles On UK Banks Businesses
Ron Finberg – Forex Magnates

Hitting a milestone, P2P lending firm Zopa has announced that it has achieved $1 billion of total loans transacted on its platform. Launched in 2005, Zopa is seeing strong growth this year, as in 2014 alone it achieved around $250 million in loans, 92% year-over-year growth from the same period in 2013. Part of a growing list of P2P lending firms around the globe, Zopa is the largest in the UK when measured by transacted deals.

PLY: The brilliant British pioneer P2P lending brand Zopa is doing fabulously, I applaud their persistence and now the banks ought to be quaking as we accelerate to the ultimate tipping point as banker power erodes…

Other stories

ISDA Research Study: Dispelling Myths: End-User Activity In OTC Derivatives – August 2014
Mondo Visione

There is a perception among some commentators that only a small fraction of derivatives activity relates to hedging that benefits the ‘real economy’. This analysis challenges that assumption. Publicly available data published by the Bank for International Settlements reveals that 65% of over-the-counter interest rate derivatives market turnover involves an end user on one side and a reporting dealer on the other. These participants, comprising non- dealer financial institutions and non-financial customers, use derivatives primarily to hedge risks and reduce volatility on their balance sheets. The remaining 35% of derivatives turnover activity relates to dealer market-making and the hedging of customer transactions – vital for market liquidity and the facilitation of client trades. Without this, end users would be unable to put on risk-reducing and cost-effective hedges, potentially leading to less hedging and more balance-sheet volatility.

PLY: A fascinating study – given that up to 65% of exchange trading can be defined as noise, it appears that derivatives could be more efficient? However counterintuitively it may be that the OTC business is less efficient as the bid offer spread and market impact benefits can come from a lot of added noise. Aside from this pondering aloud as we rush to pixel, I am minded to note that the primary takeaway is clearly that end users are active in the swaps business…now think how that can be made more efficient through direct SEF trading and not enforced bank intermediation!

South Korea To Double Daily Stock Trading Limit (subscription)
Song Jung-a – Financial Times

South Korea plans to expand the daily price movement limit on stocks traded on the main board for the first time in nearly 16 years, as part of government efforts to revitalise the financial sector.

Stocks listed on the Kospi Composite will be allowed to rise or fall daily by up to 30% from their previous closing price, compared with 15 per cent currently, the Financial Services Commission said on Tuesday. The new limit will be applied first to the main bourse and then later to the junior Kosdaq Market.

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