August 16 2013

elb2 Looks like at least a USD 450 million loss (guess where?) while some updates on LME CEO, mutli currency CME ag products while Africa’s exchanges are growing, multiple share sales and shuffles in CME, Betfair, IBKR and others while DirectEdge have made their Brazilian competition submission.

All this and more in today’s EI:

Public Markets

IPO Revival Boosts HKEx Profit (subscription)
Financial Times

Increased trading volumes and income from LME helped Hong Kong’s stock market operator record a 10% rise in Q2 profits.

Charles Li – HKEx CEO and Paul Kennedy – HKEx CFO Presentation here.

HKEx Close To Picking New LME Chief

The exchange is choosing from among its COO, Diarmuid O’Hegarty, Garry Jones, a former CEO of NYSE Liffe, and Martin Pratt, COO at metals trader Triland.

PLY: First time Martin Pratt has been publicly named.

LSE Extends European ETF Market Share Lead Over DB
ETF Strategy

LSE is the “preeminent European venue for ETP listings and trading”, according to head of exchange-traded products (ETPs) Gillian Walmsley.

LSE had the largest share: 29.5% of the European ETF market in July, based on on-exchange trade activity, up from 27.2% in June. Deutsche Börse, recorded the second largest share of on-exchange ETF trading with 25.5%, down from 25.7% in June.

Until last year the Deutsche Börse, via its XTF ETF segment, held the top spot for European ETP trading but has seen its market share steadily slip.

PLY: Encouraging numbers for LSE although I think “leading” might be better than “preeminent” which is hardly an appropriate adjective for a 4% lead… Meanwhile, am I alone in being bemused by the fact that a vast chunk of ETP now trades OTC?

3 Numbers That Make Singapore Sing
The Motley Fool

SGX has delivered an exceptionally high Return on Equity (ROE) for investors at 33% vastly above the local Straits Times Index (average 9%).

SGX Net Income Margin of some 45% is a reflection of its dominant market position.

The mouth-watering high return of 33% has been achieved by multiplying a modest gearing of 2.1 with an acceptable Asset Turnover of 0.36 and a salivating Net Income Margin of 45%.

PLY: Simple math displaying SGX’s success under Magnus Bocker.

Metals Warehouse Mess: A Guide For The Perplexed

Drab sheds full of aluminium ingots aren’t a natural place to go looking for a financial conspiracy.

A flurry of class action lawsuits have accused Goldman Sachs, JPMorgan, and Glencore of manipulating prices by encouraging big stockpiles and long wait times.

Private Markets

Chicago SE To Pay $300,000 For Trade Errors

CSE (averaging during 2013 0.4% of US equity trade) agreed to pay $300,000 to settle U.S. regulatory claims that it failed to comply with rules designed to ensure all investors get the best prices after some brokers were able to abuse a component of the exchange’s order-matching system from 2006-2010 to obtain better prices at the expense of other investors.

TOM Processes 10 Millionth Dutch Options Contract

…Shareholder BinckBank is the only broker currently using the TOM smart order router comparative tool to provide best execution.

PLY: NASDAQ’s 25% share stake is looking good in this market which will soon add Timber Hill as a market maker.

Swiss Bourse Renews Push For HFT Flow (subscription)
Financial News

SIX joins major European competitors on the Sponsored Access bandwagon to attract HFT business.

Direct Edge Submission To CVM’s Consultation On Brazilian Exchange Competition
Direct Edge

Direct Edge, submitted its response to the CVM request for comments, suggestions and opinions regarding the introduction of competition between trading platforms in Brazil.

PLY: The full submission can be found in English here

Ghana Bond Market Expansion

The government will expand the local bond market to finance long-term development projects in the country. Most of these bonds will be listed on GSE.

Special Section: FTI, NSEL, India at the Crossroads

Time for more analysis in the NSEL scandal as MCX shares are down about 3.5% and FTI up about 6% today.

The outlook appears ever more murky for the career of Jignesh Shah as every kind of financial threat apparently awaits him. Also, a politician has finally put a number on likely losses: if investors receive 50% of their investment they will be lucky – that’s at the very least, a 450 million dollar hit. Grim.

Time For Sebi To Take Leadership
Business Standard

Governance and regulatory experts say the NSEL crisis has reached a stage where a strong regulator such as SEBI have to take leadership and prevent the situation from worsening further.

PLY: My tiny problem here is that SEBI are often totalitarian but I am not really sure that is the same as being a strong regulator? Moreover while given some temporary powers, they are not the permanent regulator of NSEL. At the same time the NSEL crisis does look to be both chaotic and lacking coherent leadership to sort the mess out. It strikes me that any new oversight to sort out the mess ought to involve independent non-Indian experts to avoid any taint of politicisation (from any quarter) but India being a large, proud nation it will probably endeavour to solve problems using internal personnel.

Parliament To Review NSEL
The Economic Times

The issue of the payment crisis on NSEL is expected to be taken up in Parliament next week.

Investors Should Sue Brokers First For Mis-Selling

Brokers who have an inglorious record of dealing with stock investors are demanding money from, and action against, NSEL.

PLY: A brutal critique of brokers, well worth reading.

Will Move Mumbai HC On Monday On NSEL Crisis: Kirit Somaiya
Business Standard

BJP (opposition political party) National Secretary Kirit Somaiya, President of Investors Grievances Forum, gives a Q&A on his view of the NSEL affair.

PLY: Note the stark final paragraph: “What are the chances of investors getting back their money?
Very slim. The investors should be happy if they get even half of their money.”

That is tantamount to saying at least 2.8 crore Rs or 450 million dollars has been lost. We can probably safely round up to half a billion without much effort…

NSEL-Owned Body’s Trades Expose Risks
The Times of India

Indian Bullion Markets Association (IBMA), an entity majority owned by NSEL, has facilitated a significant chunk of trades on the bourse, exposing risks in the regulatory architecture and raised fears of a possible conflict of interest.

The revelation has also prompted regulator Forwards Market Commission to probe if IBMA was involved with trades on MCX, the commodities futures exchange.

NSEL holds a 74% stake in IBMA, while the remaining shares are held by bullion traders.

PLY: Such conflicts of interest never look good when a crisis breaks and will only add to the suspicion (rightly or wrongly) swirling around Jignesh Shah’s probity of actions at all times.

NSEL May Face Tax, Laundering Probes
The Times of India

The government is likely to follow a recommendation from regulator FMC and order a multi-agency probe into the NSEL fiasco, besides getting central agencies such as Food Corporation of India and the Central Warehousing Corporation to take stock of the commodities lying in warehouses across the country.

PLY: It looks as if the Indian establishment, long somewhat cool towards Jignesh Shah, have now opted to add a noose around his neck in an effort to help him where he was clinging by a rope in my metaphor yesterday…

Broker Raised IPO Money To Invest In NSEL Products Just Before Crisis
Business Standard

Just before the NSEL crisis escalated, a broker, GCM Commodity and Derivatives, raised funds from the equities market to invest in the products of the now beleaguered bourse.

Terming NSEL’s product offerings a “unique, low risk, high return investment opportunity in the commodity market for Indian resident investors”, GCM Commodity raised money from a little more than 350 investors through its IPO earlier this month.

The IPO via the BSE SME exchange raised Rs 7 crore (1.1 million USD) as the NSEL crisis was breaking…

PLY: Ugly timing. Subscription apparently opened as NSEL started suspending contracts. Surely the BSE and the offer’s bankers/brokers ought to have considered suspending the offer? Worrying that the company is not answering media queries…

Shah, NSEL Must Clear Air On Money Trail
The Times of India

There’s no doubt that the NSEL crisis has pushed back by several years the ambitions of Jignesh Shah — one of two men behind the rise of FTI — of becoming one of the leading exchange players globally.

PLY: Some options to salvage the situation although I am not sure that Mr Shah really can recover, even within several years. His credibility has collapsed, his own management structure appears poor and the crisis has spiralled out of control. In the breach he has been tested and is currently found wanting. The way things are developing, it seems as if he may have a matter of days, perhaps only hours, to up his game or face a humbling, potentially bankrupting, downfall.


MarketPrizm To Provide Full Depth Historic Data From Global Exchanges

MarketPrizm will provide full depth historic data captured and time stamped in co-location, with the initial phase covering the most recent three months’ worth of historic data for [we believe] 34 exchanges world-wide.

PLY: Another breathless fuzzy press release – slightly worrying for a company providing accurate data surely? The key facet to understand is how the race is on to provide high quality data with all key trading details in a historical form for back testing (qv CME’s release of forex futures data with similar formatting recently)…


CBOT To Quote Wheat Futures In AUD
ABC Online

PLY: What I have long argued for is finally becoming reality, local currency quotations as well as USD amounts for futures/options products.

Career Paths

SEC Commissioner Michael S. Piwowar was sworn into office today, replacing former Commissioner Troy Paredes who stepped down earlier this month.

Financial Calendar

NZX Ltd. will release Q2 financial results Monday, 19 August.
ASX will release 2013 full-year results Thursday, 22 August.

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

Share Notes

CME Group Insider Derek Sammann sold 2,500 shares Wednesday, August 14th at an average price of $74.11 (bargain $185,275.00). He now owns 18,100 shares.

Richard Koch, the Betfair investor behind May’s near-£1bn bid approach for the betting exchange group, has pocketed £10.3m after cutting his stake in the business to just below 5pc. Read more of his sales and those of other key investors here.

GFI EVP J Christopher Giancarlo sold 5,000 shares Monday, August 12th at an average of $3.96, (bargain $19,800.00). He now directly owns 28,995 shares.

Charles Schwab EVP James Mccool sold 87,163 shares on Tuesday, August 13th at an average price of $22.32 (bargain $1,945,478.16). He now directly owns 98,431 shares.

Following his sale of 2,000 shares Tuesday, August 6th at an average price of $16.64, (bargain $33,280.00) reported on August 12th, and the sale of 2,000 shares at an average price of $16.78 (bargain: $33,560.00) reported on August 13th, Interactive Brokers SVP Milan Galik sold another 2,000 shares of Interactive Brokers Monday, August 12th. at an average price of $17.02, (bargain $34,040.00). Following the sale he now directly owns 820,604 shares.


Why Crowdfunding Is Disrupting Finance

It is truly remarkable to think about the disruption that has resulted from the creation of marketplaces in almost every industry over the last few years. Need a restaurant reservation? Open Table has it down to a science. Hotel rooms? Enter Airbnb. Clothing? Enter Poshmark. Dog sitter while on vacation? There’s DogVacay. Even scientists can help enlist a global network of researchers in a marketplace called Science Exchange.

…and then there’s crowdfunding…

Other Stories

Africa’s Ag Exchanges Take Root

A handful of African countries are setting up commodity exchanges in an effort to develop agricultural markets and improve food security. Are they the key to Africa’s agricultural growth?

PLY: The Ethiopian ECX has built upon the foundations created by MCX in India and prospered. This is the age of the exchange and Africa ought to profit along with the rest of the world…

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