August 14 2013

elb2 Good results from South Africa, even the regulators acknowledge Aequitas leading thought in Canada, NASDAQ reclaims regulatory functions while there are good discussions of MIFIDII and metals warehousing.

Meanwhile the NSEL Indian spot crisis continues and indeed for various reasons, today may mark a watershed moment, as our special section notes…

Public Markets

JSE Delivers Strong Performance In H1 2013

Johannesburg delivered a strong performance in H1, with operating revenue increasing 16% to R794 mln (USD 79.71 mln) (H1 2012: R683m) (USD 68.57 mln) thanks to higher volume and increasing post trade revenues.

Group earnings increased 191% to R293m (USD 29.41 mln) (2012: R101m) (USD 10.14 mln) and Group headline earnings were up 35% to R285m (USD 28.61 mln) (2012: R211m) (USD 21.18 mln) driven by the Group operating revenue performance and the effect of the impairment in the comparable reporting period (H1 2012: R72.6m) (USD 7.28 mln).

Group operating expenditure was down 3% at R488m (USD 48.99 mln) (2012: R504m) (USD 50.60 mln).

Press Release here.

PLY: Good numbers from Nicky Newton-King and her team.

HKEx – Typhoon Cancels Hong Kong’s Wednesday Stock Trade
MarketWatch

The Hong Kong exchange canceled trading Wednesday due to Typhoon Utor, generating a severe “force 8” warning from the Hong Kong Observatory.

HKEx:Typhoon Arrangement For The Board Meeting To Be Held On 14 August

PLY: To update this story, we understand from the HK Meteorological office website that Utor (‘crazy name, crazy storm’ to paraphrase Private Eye) was cancelled at 13.40 but was therefore in effect at 0800 so the HKEX board meeting has been adjourned one day to Thursday, 15 August 2013.

LME Warehousing Queues: Will LME Proposal Have An Impact?
Commodities Now

…Five locations are reported to be the centres of the delay.The warehouses in these locations are nevertheless significant because of their size, with Vlissingen and Detroit accounting for 64% of LME aluminium stocks and Johor, New Orleans and Detroit accounting for 89% of total LME copper stocks.

PLY: In the way that only lawyers can render paperwork soporific this is a dull but measured article from Messrs Herbert Smith which is very useful for those trying to garner better understanding of the warehousing issue and proposals to resolve it from HK currently.

Nasdaq To Increase Exchange Policing Role
Reuters

Nasdaq OMX plans to assume a greater role in the policing of its U.S. stock exchange, taking back powers previously mandated to FINRA.

PLY: Clearly the banks remain concerned about US SRO powers of exchanges if for no other reason than it lessens banks leverage over them. However, the ‘incentive’ to an exchange to play fast and loose remains a de facto act of suicide. This argument is a sideshow broadly without merit as banks try to make up for their own vast failings and rightly tarnished reputations. The fact that banks themselves are past their power peak is only exacerbating their concerns…

WSE May Launch Ag Market
Warsaw Business Journal

PLY: Spokesman confirms GPW’s desire to take on the ag space where there is currently a co-op market: WGT. Competition is good and better for the market than simply imposing a monopolist. At the same time, WGT has been arguably a somewhat lost opportunity for many years which could yet stage a resurgence if it gets its priorities together…

JSE To Sell Colocation Space
datacenterdynamics.com

Colo in Sandton at JSE HQ with around 35 server racks to rent for the low latency fraternity.

Mifid II: The Revenge
Futures & Options World

PLY: Useful background on MIFIDII/MIFIR in the usual he says/she says FOW house style.

Private Markets

Six Readies OTC Platform (subscription)
Risk.net

The XBTR electronic trading platform for OTC structured products is scheduled for launch August 18 in Zurich.

Canada Market Regulator Seeks Views On Budding Exchange’s Methods
Reuters

Ontario’s securities regulator is seeking opinions on a prospective exchange operator’s radical proposals about market trades and will mull whether to amend rules governing Canadian markets to accommodate the newcomer.

PLY: In terms of shaping the agenda, Aequitas has captured the imagination of the Canadian investor marketplace, along with, clearly a few hearts and minds too. Innovation is good and the OSC are to be applauded for looking ahead to regulating the market (a massive failing in regulation everywhere remains the prevailing overly prescriptive nature which precludes well-considered incremental and radical innovation due to a box ticking culture of force-fitting the new into to outmoded legalistic thinking).

I applaud Jos Schmidt for the vigour of his ideas and the market he is developing. At the same time, serious questions need to be asked of TMX management which seems to be becalmed at present. It may be fun being a boss in Canada’s leading exchange but the job requires leadership and that, after all the fanfare of the “better exchange” has not yet materialised. Perhaps there is a ‘rupture’ coming when Tom Kloet’s contract runs out in the fall?

Original OSC request for comment is here.

Legal Framework For Nigeria SE Demutualization
BusinessDay

PLY: Go look at any population projection for this century and beyond and even if it is only half right, Nigeria is on its way to being absolutely massive. With oil to fuel its ascent, that makes for a potential powerhouse which needs a fair, open, free market system to prosper with an exchange as its bedrock of capital facilitation. Nigeria is at an exciting crossroads: government must keep the internet scammers who sully the nation’s name in abeyance by building a fair and open system for all to prosper without fear of oligopoly. The demutualisation of this NSE is a really significant event for Africa’s future prosperity, may it be fair, free and open.

Dividend News

On August 15th, Charles Schwab 6.00% Non-Cumulative Perpetual Preferred Stock, Series B will trade ex-dividend, for its quarterly dividend of $0.375, payable September 3.

Special Section: FTI, NSEL, India at the Crossroads

So far readers around the world have been gripped by the NSEL crisis and let’s face it, all we’re missing is a spot of sex to create a best-selling Brazilian soap opera or John Grisham novel depending on your preferred genre.

I firmly believe today will mark a very significant turning point (one way or the other) for the NSEL crisis. We await the press conference by NSEL planned to issue a final schedule for settlement today (August 14th)…

Meanwhile, allegations (mostly still in a dematerialised smoking gun format) are swirling and counterparties / intermediaries are clearly under duress. FTI shares collapsed by some 40% this morning but have been staging a rally to be ‘only’ 13% down at the time of writing. Today is likely to go down as the day where either Jignesh Shah summons up all his remaining power and starts turning the situation around on the back of a plunging stock which has rallied from its lows, or he will be lucky to even survive as a highly diminished figure in Indian, let alone global, markets.

Therefore, a series of articles on the crisis with two thoughts in my mind, not merely the increasingly feasible demise of Jignesh Shah (at least in this phase of entrepreneurship). The other key factor is that MCX is absolutely now in play one way or the other and Indian regulators will need to find a solution where I increasingly think closedown is difficult to envisage, even if FTI collapses with NSEL. To that end, this may be the most incredible buying opportunity for investors in Indian exchange history. Having revisited some DD notes on Indian exchanges I did while there a couple of years back, I firmly believe that there are great assets here which make for incredible long-term investments as well as potentially large medium term bounces once the NSEL mess has been cleared (and perhaps FTI taken down with it – although the latter too has assets that may be worth assessing as a fire sale could be on the cards if NSEL defaults).

From crisis comes opportunity…

NSEL Fiasco: FTI Cracks 35%; Down Over 60% So Far In August
The Economic Times

PLY: Now things are getting very messy for Jignesh Shah. Claims of missing NSEL warehouse stocks are destabilising even those previously showing a modicum of calm.

Financial Tech Down 35%, Brokers Allege NSEL Is ‘Buying Time’
ndtv.com

Motilal Oswal, Chairman/MD of MOSL with an exposure of Rs. 250 crore (USD 40.67 mln) told NDTV that NSEL’s handling of matters is creating confusion:

“Statements made by NSEL are contradictory. There is no transparency in sharing information.”
“We believe they are buying time, which is making us jittery.”

NSEL Investors Fear Default; Brace For Legal Battle
livemint

High-profile investors in the embattled NSEL are exploring legal options, apprehending default by the commodity exchange.

In a hurriedly called press conference on Tuesday, a group of investors and brokers led by Nirmal Jain, chairman of India Infoline Ltd, Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd, and Anand Rathi, founder and chairman of Anand Rathi Financial Services Ltd, said that a few of them had visited some of the warehouses and discovered that these did not have the quantity of the stock mentioned by NSEL. In some cases, there was no stock at all and the warehouse receipts were fake, they alleged.

Though there are reports that NSEL has engaged Switzerland-based SGS to audit stocks across 89 godowns of the exchange, an investor from Delhi alleged that SGS has merely drafted an offer letter to audit the stock held at warehouses and nothing has been finalized as yet.

The reports said that SGS India, a part of Switzerland-based SGS Group Management SA, has been given the mandate to audit 21 commodities that are stocked across 87 warehouses of NSEL. The group is one of the world’s biggest inspection, verification, testing and certification companies.

PLY: None of this looks good. Whatever the truth of the situation, the PR crisis is spiralling into its own orbit and the Indian media are understandably seeking answers… Ahead of the press conference, FTI/NSEL looks out of its depth.

Somaiya Moves CVC Against NSEL Promoters
Business Standard

A day after filing a complaint with the Mumbai Police against NSEL, Kirit Somaiya, president of Investors’ Grievances Forum, has filed a complaint with the Central Vigilance Commission (CVC) against NSEL’s promoters and the Forward Markets Commission on Tuesday.

Somaiya, who is also Bharatiya Janata Party (BJP) national secretary, said in a statement that he has asked CVC to probe the NSEL for fraud, forgery and cheating 17,000 small farmers and small investors. In his complaint, Somaiya said more than 5,000 small investors from Mumbai have lost their hard-earned money. He added the FMC failed in its duty to protect the small investors and, hence, it should also be probed.

PLY: One of the reasons I have long championed the MCX, its relatives and competitors was in their success in helping subsistence farmers out of the stranglehold of unreliable government planning into being free agents able to cultivate a hedged crop for a defined income. Now if an exchange has actually defrauded those self-same producers it is simply beneath contempt. Hopefully, unlike toothless regulators elsewhere in the world who failed to hold bankers to account for their recklessness in 2007/2008, the Indian regulators will rightly prosecute if any fraud has indeed been seen to take place.

E-series Investors Can Hold Units In Demat Form Or Convert Into Physical Metal
The Economic Times

NSEL has suspended trading in e-series contracts till further notice after the Forward Markets Commission (FMC) banned new commodity futures contracts due to alleged violations of norms. This has put investors with e-series units in a difficult position, as they can’t sell them on the exchange platform. Similarly, those who had systematic investment plans (SIPs) with the exchange are also in a fix.

Investors can continue to hold e-series units in the demat form, opt to convert them into physical metal, or look at some ETF substitutes…

10 Questions Brokers Want Jignesh Shah To Answer
Business Standard

Leading brokers now seem to be on a warpath against NSEL and want the government to take over NSEL, MCX and Financial Technologies till the payments to all concerned parties are made.

PLY: Several angles on the same press conference but all worth reading given the extent of the crisis. It is notable that the personal angle against Jignesh Shah in all stories but then again as I noted last week, be nice to the people on the way up because you’ll meet them again on the way down… Advice that even last week came too late now for some it seems.

5 Questions To Brokerages Crying Foul Over NSEL
Business Standard

PLY: Meanwhile, demonstrating the lively and highly informed nature of Indian media (which puts many other purely Anglophone countries to shame!) here are five questions for the brokerages.

Mr Joydeep Ghosh concisely punctures the righteous indignation which is increasingly a global facet to the sell side (and it is not a remotely appealing facet). A weight of accusations are indeed piling up against NSEL/FTI/Jignesh Shah which absolutely have to be answered but at the same time, the sell-side itself will need to face up to the fact that it was clearly still missing a few chairs when the music stopped. The government might be needed to intervene but, alas, this is capitalism and everybody playing has to accept the risks.

Investors Seek Satyam-like Solution To NSEL Crisis
The Hindu

NSEL has asked the government to supersede the present management of the commodity exchange with a “respectable” board from the members of the society.

“We want the government to take over Financial Technologies (India) Ltd., the holding company of NSEL, as in the case of Satyam,” said Sharad Saraf, Convenor, NSEL Investors Forum, here while addressing a press conference.

PLY: I am not sure this is a logical corollary. Satyam was ‘saved’ by government because it was a massive SaaS company whose Chairman was paying 13,000 non-existent workers on top of 40,000 genuine ones to cover up a massive fraud. Industrial intervention happens (not always logically q.v. Western Europe) but there was a clear public interest argument for sustaining Satyam which has blossomed since being sold to Mahindra.

Forward Markets Commission Wants Finance Ministry To Look Into NSEL Case
The Economic Times

The commodity market regulator has recommended that the case of NSEL’s default should be handed over to the ministry of finance amid fears that some of the transactions may require the assistance of central agencies.

PLY: I feel a metaphorical noose tightening around certain bodies (personal and corporate) as this crisis unfolds…

Why NSEL Is In A Spot
The Economic Times

PLY: For those who have been foolishly enjoying holidays, this primer may help you get up to speed with what is a seminal crisis in the industry…

Last Time When An FT Group Exchange Shut Down…
Business Standard

PLY: And finally for this (marathon) section today, 4 years ago, another venture that opened with much fanfare and projected to hit volumes of Rs 60,00 crore (USD 978.7 mln) shut down suddenly.

SAFAL National Exchange of India Limited (SNX) was incorporated on June 14, 2006 as a joint venture between FT, MCX and Mother Dairy Fruit and Vegetable Private Limited, company promoted by National Dairy Development Board. SNX was incorporated for the purpose of spot trading in horticulture, floriculture, dairy and allied produce and products. FTI held 51%.

The exchange picked up, drawing a lot of interest from farmers but was suddenly called off in March 2009.

…a cautionary tale which presumably didn’t leave a lot of good will towards some parties as a result of this exchange’s closure…

Technology

Montreal Entrepreneurs Open State-Of-The-Art CBD Datacentre
The Sacramento Bee

Canadian Colo, a home-grown Montreal company, today opened its 22,000-square-foot state-of-the-art neutral data centre officially open for business, providing companies of all sizes in Montreal and beyond with greater choice and availability based in the heart of the CBD in the Montreal Stock Exchange Tower.

Career Paths

JSE announced that Michael Jordaan, who retires as CEO of First National Bank in December this year, will join the JSE Board as a non-executive director with effect from 1 January 2014.

Meanwhile serial exchange executive Patrick Birley, formerly CEO of ECX & SAFEX amongst other ventures, has resurfaced as the owner/CEO of www.goddardsbrewery.com. He hopes to maintain a non-executive handle on financial markets in due course but meanwhile is busy consolidating the boutique brewer based on the Isle of Wight in the south of England.

Financial Calendar

Romania’s SIBEX will publish Q2 results today

Share Notes

NASDAQ OMX EVP Lee Shavel sold 35,000 shares on Monday, August 12th at an average price of $32.02, for a total transaction of $1,120,700.00. Shavel now directly owns 176,779 shares.

Analyst Notes

LSE “Overweight” Rating Reaffirmed at Barclays Capital – GBX 1,800 target price

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.

Crowdfunding

Proposal To Allow Crowdfunding For Wisconsin Businesses
Bloomberg

Wisconsin small businesses could sell stock shares to potential investors online under a proposal unveiled Tuesday that its backers said would take the popular Kickstarter model to a new level.

The bill circulated for co-sponsors on Tuesday would allow interested investors to purchase stock and equity in a business, not just make a donation, using the same online crowdfunding methods.

PLY: We applaud the GOP representatives taking up this cudgel to build a better investor framework from the ground up…

Other Stories

The Opposite Sketches: The Pay-To-Make Exchanges
Benzinga

PLY: Discussing maker take and options…

Indian Stock Markets Back Door Entry For Laundered Money: Myth Or Reality? – Analysis
Eurasia Review

A worthwhile read albeit a slightly inconclusive review of money laundering and Indian markets with some deeply worrying undertones.

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