August 18 2014

elb2A panoply of fascinating stories on all continents from JSE results and calls for African consolidation, new products in Moscow, maddest resolution proposal yet for NSEL along with a multiple of other Indian news. Bitcoin hits the headlines again, understanding still somewhat lacking in the broad media, could it be that PSE have finally got the Bond market merger ready? KRX share stake for sale, BM&F Bovespa CCP completion, Sharon Bowles to LSE as NED while investors seek sacking of Betfair board members. Austrian CCP gains EMIR recognition, while Haifa investigates creating new exchange to rival TASE. All this and more in today’s free Exchange Invest, happy scrolling:

Public Markets

JSE H1 Financial Results
Reuters

Highlights

Group operating revenue up 9% to r869 (USD 82.10) mln
Group earnings EBIT up 10% to r380 (USD 35.90) mln
EPS up 14% to 389.4c (63.9 mln) and headline EPS up 17% to 391.2c (64.2 mln)

JSE press release here.

PLY: Interesting progress from JSE.

SIBEX H1 Financial Results
SIBEX

Net turnover Lei 585 926 (USD 177k), up 3.5%
Net Loss Lei 911 741 (USD 275k), up 14% from 798 826 in H1 2013

PLY: Another dismal set of results from SIBEX. Clearly they haven’t found, or understood the plan I left them. Pity it would have been making a profit equivalent a million dollars or more as opposed to their current losses. The potential remains. The business is however bereft of momentum.

Manila Bourse Nears Bond Exchange Takeover Deal
Reuters

The board of PSE has approved a 2.25 billion peso ($51.6 million) takeover bid for Philippine Dealing Systems Holdings Corp, a deal that will merge the local equities and fixed income markets, BusinessWorld newspaper reported.

EI reported on July 21st that PSE and PDEx are aiming a for an October merger. Previous discussions here, here and here.

PLY: I can barely believe this given how long it has taken…

PSE To Sign A Deal With BAP To Buy 67% Of PDS
ABS-CBNnews

PSE hopes to sign a purchase deal with BAP to buy two-thirds of the Philippine Dealing Systems Holdings Corp. within the next two weeks. PSE president Hans Sicat said the PSE board recently approved an offer of P2.2 billion and pushing for 67% of PDS. Sicat believes the PDS is a good acquisition because it has a depository function.

MCX board To Decide On FTIL Stake
Rajesh Bhayani – Business Standard

MCX, under pressure to sell the stake of its promoter, FTIL, has called a board meeting on Monday. One item on the agenda is to decide whether the remaining stake of FTIL in the exchange be transferred to an escrow account.

Sebi To Re-Examine MCX Plea On MCX-SX Divestment
Business Standard

Sebi will take a relook at a fresh plea by MCX that it be exempted from divesting its holding in MCX-SX, sources have said. Sebi has asked MCX and FTIL, to sell their holdings in the exchange and the Clearing Corporation Limited founded by these.

EI reported last week that MCX wrote to Sebi to clarify stance on MCX-SX stake sale.

BM&FBovespa To Launch Clearing House (subscription)
Samantha Pearson – Financial Times

BM&FBovespa is set to launch its new clearing house in a move that will inject R$20bn ($8.8bn) into the country’s markets and open up a new line of business for the exchange operator.

After four years of developing the platform, the exchange operator is in talks with three other emerging market countries to sell them a blueprint for the clearing house’s technology.

Canada’s TMX Confirms StrikeNET Buy To Link To U.S. Markets (subscription)
Don Curren – Wall Street Journal

TMX confirmed that, it is buying StrikeNET, a unit of HFT firm Global Trading Systems LLC, to launch a microwave network linking markets in Toronto, New York and Chicago.

TMX Press release here.

EI reported on August 6th that TMX agreed to buy StrikeNET.

As ICE Adds Fees, Banks Mull Dropping Libor (subscription)
SeekingAlpha

ICE took over administering Libor this year and on July 1 introduced licensing agreements, including a usage license ranging from $8K-$40K per year. Previously, Libor was free except for companies wanting to redistribute the rates.

EI reported on July 25th that ICE pumped more than $15 mln in the benchmark business,
EI reported on July 9th that ICE was preparing deeper reform of Libor.
EI reported on April 30th that IBA was appointed as the new administrator of ISDAFIX.

PLY: A twist on the thesis that the financial industry is remarkably miserly. Or as Jeff Sprecher astutely notes: “There has been a lot of criticism by people that they wanted Libor to be better, but then when they’re asked to pay for it, they’re surprised. It shouldn’t be a surprise.”

Protests & Debate As Mifid II Draws Closer (subscription)
Anish Puaar & Tim Cave – Financial News

It has been a long and arduous summer in the City for much of Europe’s trading community. In May, a mammoth 800-page consultation paper caused a collective sigh of despair among the regulatory and public affairs teams of banks, brokers, exchanges, technology vendors and other practitioners.

PLY: Messrs Cave and Puaar provide a useful round-up of the core MIFID II issues including bond trading, exchange data fees, HFT and open access – all of which already show worrying signs of the dead hands of bureaucracy as opposed to understanding how to make better markets.

TriOptima Compression Reaches $500 Trillion In Eliminated Notional Principal
Mondo Visione

TriOptima, provider of OTC derivative post trade services, today announces that market participants have eliminated $500 trillion in notional principal outstanding since it introduced triReduce, its multilateral compression service, in 2003.

PLY: Hip Hip Hooray for TriOptima once again – a brilliant milestone for the ICAP business.

Barclays Seen Facing $2 Billion In Misconduct Costs
Stephen Morris – Bloomberg

BARC faces costs of as much as 1.2 billion pounds ($2 billion) for its alleged rigging of currency markets, lying to clients about its U.S. dark pool and mis-selling IRS, Sanford C. Bernstein Ltd. said.

NY AG announced the fraud charges against Barclays in June.

Name Is Ready For Birth Of Barclays Prop Spin-Out (subscription)
Tim Cave – Financial News

A Barclays proprietary trading team that is set to spin out from the British bank this year is to be named Squarepoint.

Silver Market Reboots Century-Old Price Benchmark
Reuters
LBMA Silver Price Launches New Era In Pricing Precious Metals
CME Press Release

Thomson Reuters introduced the new fix system Friday August 15th…

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.

South African Proposals Cause Offshore Clearing Flap (subscription)
Fiona Maxwell – Risk

Dealers and clearing houses have raised concerns about South African proposals that could prevent local banks from using foreign CCPs – something the industry hopes is an oversight and which the country’s National Treasury admits is under review.

Recognition and authorisation of foreign CCPs has become a battleground in recent months, with the notion of equivalence at its heart. The idea is that foreign clearing houses can be approved for domestic use if they are supervised under an equivalent regime, but the South African proposals appear not to include the concept of equivalence at all.

Private Markets

Foreign Institutions Eye KRX Stake
Kim Eun-jung – Yonhapnews

A small stake in KRX put up for sale by a local financial group is raising the interest of foreign investors ahead of a possible IPO. Following its merger with Woori Investment & Securities in June, Nonghyup Financial Group offered its 2.9% stake in KRX for sale because it exceeded the KRX 5% stake cap.

CCP Austria Abwicklungsstelle für Börsengeschäfte Obtains EMIR Clearing Licence
Wiener Borse News

CCP Austria, has received authorisation to act as a clearing house pursuant to EMIR by the Austrian FMA, under the auspices of EMIR.

The full list of CCPs authorised for EMIR can be reach on our website here.

Move Over Tel Aviv, Haifa Reportedly Seeks Its Own Stock Exchange
Niv Elis – Jerusalem Post

The Haifa municipality is reportedly planning to initiate plans to open its own stock exchange to compete with Israel’s sole exchange in Tel Aviv.

PLY: Apparently a tender is to be expected in the next few days for a bourse with a focus on high-tech companies – watch this space concerning an intriguing development in the wake of recent political shuffles at TASE.

Tanzania Proposes Merger Of Bourses
Caroline Kandiero – BNL Times

DSE CEO, Moremi Marwa has said it is important for the African continent to integrate their stock market operations in order to attract investors.

SHFE Launches Energy Trading Subsidiary In Free Trade Zone
Shanghai Platts

SHFE on Friday unveiled INE, a subsidiary that will handle energy futures trading within Shanghai’s new Free Trade Zone.

The INE will operate the SHFE’s much-touted Crude Oil futures contract — currently still being developed — as well as existing contracts for 180 CST high sulfur fuel oil and asphalt.

MPSE May Be Rechristened As ‘Central India Stock Exchange
Times Of India

If all goes well, MPSE is likely to be rechristened as CISE. A proposal to this effect has been sent to Sebi.

IEX Founder Brad Katsuyama Aims To Change How U.S. Stock Markets Function
Joanna Slater – Globe & Mail

Five months ago, Brad Katsuyama went from being the founder of an obscure startup to the hero of a runaway bestseller. Now comes the hard part: building a business that will live up to some very high expectations.

Nigerian Bourse Threatens Sanctions On Defaulters
Star Africa

NSE has said that it shall not hesitate to administer and enforce a 5% sanction on any issuer that fails to pay dividends to its shareholders within the timeline specified in the resolution passed by the shareholders at the AGM at which such dividends were declared.

US To Cooperate With Japan In Mt Gox Investigation
Andrew Quentson – Cryptocoins

Pretty much everyone observing the Bitcoin space, whether a participant or a critic, is wondering what happened in the alleged Mt Gox hack.

Mt. Gox Insider’s Kraken Bitcoin Exchange To Open In Japan
Pavel Alpeyev – Bloomberg

Jesse Powell knew Mt. Gox was not long for this world more than two years before the once-dominant bitcoin exchange went bankrupt in February.

In June 2011, Powell took a last-minute flight to Tokyo to help Mt. Gox recover from a hacking attack. He ran the day-to-day business, drafting press releases, hiring and training staff, while the company’s Chief Executive Officer Mark Karpeles focused on reviving the service. A month after the trip, Powell founded a competitor — Kraken. It is in talks to offer services in Japan, he said in an interview, declining to give a date.

PayPal Subsidiary Braintree In Talks With Coinbase To Accept Bitcoin
CoinDesk – Jon Southurst

Payments firm Braintree, a subsidiary of eBay and PayPal, is “in talks” with Coinbase and several other processing companies on the possibility of accepting bitcoin.

PLY: Another crack in the golden banking paywall…

Bitcoin VC Investments Now Targeting Emerging Markets
Diana Ngo – CoinTelegraph

While the success of cryptocurrencies has been much highlighted in developed countries in 2013, 2014 is certainly the year when digital currencies will embrace emerging markets.

One of the most important factors that indicate the growth of an industry is the amount of venture capital raised by its companies and startups. In 2013, Bitcoin startups raised a total amount of US$88m, which is 40.9% higher than 2012.

Bitcoin Is Small Change In Financial Innovation (subscription)
James Mackintosh – Financial Times

The purchase of electronic money by a finance minister was symbolic of something bigger, though: Britain wants to encourage financial innovation. It is not alone, with Mario Draghi, ECB president, aiming to redesign the market for securitised loans.

PLY: The profound inability of the Financial Times to understand the future, less still help shape the agenda, is self-evident in some asides in their special Bitcoin articles today. This remark sums up their creative vacuum and incapacity to look beyond what Brussels tells it to print: “Meanwhile, the potential of Bitcoin is unclear, except as a way to dodge tax or buy anonymously online.”

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 3% while FTIL is down 3.5% as we head to pixel with news of a frankly whacky proposal to reverse NSEL into FTIL – a proposal so ill-considered by the regulator that it was presumably proposed by the legal profession who would reap millions in fees from the resulting multilateral legal actions.

Merge NSEL With FTIL, Says Commodity Market Regulator To Government
Sugata Ghosh – Economic Times

The commodity market regulator has told the government that the fraud ridden NSEL should be merged with FTIL – an unprecedented proposal which could be bitterly resisted by various stakeholders of FTIL, a listed, profitable company. Yes, FTIL ought to pay the resulting losses from the scandal at its subsidiary but enforcing collectivist fiat punishment is madness if India really wants foreign financial investors. (The problem I suppose remains that “if” which is a very very large “if” given multiple actions by regulators in recent years).

Brokers Had A Big Hand In NSEL Scam: EOW
DNA

Brokers played a major role in NSEL scam, EOW of the Mumbai crime branch has found.

PLY: This EOW revelation remains wholeheartedly unsurprising but it does demonstrate how the sell side will, without shame, endeavour to blame anybody else for their own greed and failings.

There’s No Pressure From Any Quarter In NSEL Investigation: Rajvardhan, ACP, EOW, Mumbai
Ram Sahgal – Economic Times

Normally, whenever an arrest is made, the media perception is that the investigation has picked up pace. But for an investigating agency like EOW, the facts are different. We don’t essentially opt for arrest unless we feel that custodial interrogation is required and that it will throw further light on the investigation. We don’t link a so-called arrest with the pace of investigation. The defaulters were not forthcoming with information pertaining to certain money flows, etc. The investigating official felt that custodial interrogation would help in tracing the fund flow, thus the arrests.

Technology

Eyeing Global Clout, Emerging Exchanges Rely On The Big Brothers’ Tech
Adil Siddiqui – Forexmagnates

PLY: I actually don’t get the point to this argument as it seems to suggest that only large exchange groups are selling tech to emerging exchanges – which if nothing else FTIL used to disprove but nowadays a panoply of independent solutions exist including the likes of Cinnober, STT, COMDAQ, Market Evolution to name but four independent vendors of different size (and if I missed you out feel free to email me a friendly reminder!). If anything, while the good folks of NASDAQ OMX and LSE’s Millennium are selling a lot of systems, the independents are selling a great deal too…

MillenniumIT Preps Surveillance Algo Library (Subscription)
James Rundle – WatersTechnology

With the impending roll-out of its Alert Algorithm Library (AAL), MillenniumIT is aiming to increase awareness of manipulative patterns and build an armory of tools that compliance officers can use to proactively detect and mitigate market abuse.

Options Completes New US Exchange Hosting/Co-Lo Platform
FTSE GlobalMarkets

Options, the private financial cloud provider, has completed the expansion of its hosting platform into the NYSE, NYSE MKT, Arca, Arca Options and Amex Options exchange colocation facility in Mahwah.

Video: Bots Already Dominate The N.Y. Stock Exchange. Your Job Is Next.
Philip Elmer-DeWitt – Fortune

“Take THE Stock Market,” says the narrator half-way through Humans Need Not Apply, a provocative — and disturbingly persuasive — YouTube video that was posted Thursday and quickly went viral (1.5 million views as of Sunday a.m.).

PLY: An excellent video at first glance in terms of explaining just where the skills problem lies and why what is perceived as middle class, probably means largely unemployable going forward without significant skills changes…

Products

MOEX To Expand Range Of Instruments For Bank Of Russia & Interdealer Repo
Andrew Saks-McLeod – LeapRate

MOEX will offer repo transactions with the Bank of Russia (in trading modes ‘repo with the Bank of Russia: repo auction’ and ‘repo with the Bank of Russia: fixed rate’) and interdealer repo transactions (in trading mode ‘repo with bonds’), in addition to 10 Eurobonds from the Bank of Russia’s Lombard list from 14 August 2014.

PLY: Good.

MOEX Rolls Out New OTC Products (subscription)
FOW

MOEX has said cash-settled USD/RUB FX futures will be launched on its main over-the-counter derivatives market on August 18.

PLY: Given current volatility, this ought to be an interesting time to launch the product!

Market Ready If CFTC Mandates Aussie IRS Clearing (subscription)
Aaron Woolner – Risk

Australian Market players convinced US regulators are poised to expand their clearing mandate to include Australian dollar IRS.

BSE To Begin Charging For Currency Derivatives Trade
Economic Times

After exempting trades on its currency derivatives platform from any transaction charges for nearly one year, leading bourse BSE will begin levying a fee for this segment from December this year.

However, the proposed transaction charges of the BSE — Rs 2 per crore of turnover initially and would eventually rise to Rs 10 per crore by October 2015 — would still be only a small fraction of the charges levied by its rivals NSE and MCX.

Career Paths

LSE said on Friday that Sharon Bowles, former member of the European Parliament, had joined its BoD as a NED.

LSE press release here.

PLY: I know and have always got on well with Sharon Bowles and certainly she signalled significantly in advance her intention to step down (her Lib Dem party in the UK were subsequently all but wiped out in MEP representation). However, I happen to be somewhat uncomfortable with her making such a swift shift to LSE, especially given the “midnight oil” which was burnt changing the MIFID II documentation (whose sponsoring ECON committee Ms Bowles chaired) to allow “open access” for clearing, which was pushed in particular by the LSE and the London banking lobby. Given that this legislation is still being implemented – with the rules being written in sessions attended by many of Ms Bowles’ former MEP colleagues, I am left somewhat uncomfortable with the unseemly haste of this appointment. It’s hardly as if Ms Bowles desperately needed to make ends meet given the rather generous pensions system for retiring MEPs. It’s a sensible hire by LSE but the timing doesn’t strike me as ideal.

JSE’s Board appointed Graeme Brookes, JSE’s Director of Governance, Risk and Compliance, as Group Company Secretary and Leila Fourie, JSE’s Director of Post-Trade and Information Services, as an executive director of the Board.

Reuters reported that Financial cloud services provider Options Information Technology LLC named Stephen Morrow, former executive of NYSE Euronext, as SVP and Global Head of Account Management.

‘Get New Independent Directors At Betfair’, Says Pension Fund
Louise Armitstead – Daily Telegraph

The directors of Betfair have been accused of presiding over “significant governance and oversight failures”, including signing off on inaccurate accounts, in a fiasco that needs immediate investigation, an influential investor group has said.

LAPFF has called for “new independent directors” to be appointed to investigate the Betfair’s dividend payments over the past three years and the role of its directors and auditors, KPMG.

EI reported on August 4th that the Betfair Chairman, Gerald Corbett, and directors are facing questions after paying as much as GBP 60 mln of “illegal” dividends over three years.

PLY: An understandable reaction to a disastrous shambles involving KPMG and indeed various executives. Naturally, having been a co-founder of Intrade, I would be available as a non-exec…

ESMA Vacancy Notice – Senior Officer Audit
Mondo Visione

Deadline: 17 September 2014. Please refer to our vacancy page for the details on this position (Ref. 2014/VAC16/AD7) and how to apply.

Financial Calendar

This week

LSE 20.7p final dividend payment
Record date HKEx $1.83 interim dividend
Record date TMX $0.40 quarterly dividend
Record date BGC Partners $0.12 quarterly dividend
Record date MarketAxess $0.16 quarterly cash dividend
Record date Thomson Reuters $0.33 quarterly dividend
Record date Fidessa 13.1p interim dividend

Analyst Notes

Markit Reiterated Their “Buy” Rating By Equities Research Analysts Deutsche Bank – $30.00 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.

Crowdfunding

Fitch: P2P Lending’s Success Dependent On Borrower Credit
BusinessWire

The long-term success of the rapidly growing P2P industry will depend on the relative credit performance of P2P loans over time and through a full economic and interest rate cycle, according to a Fitch Ratings report.

PLY: A good point but clearly the industry of P2P lending is creeping up to the point of competing directly with banks…and that is wondrous news all round!

London Emerging As World Leader In Crowdfunding (subscription)
Financial Times – Jonathan Moules

London is emerging as the world leader for crowdfunding with more of the online revenue raising campaigns being run out of the UK capital than cities in the US where the method of financing new ventures was born.

The claim is being made by the Crowdfunding Centre, a research group, which has for the first time mapped the locations of live campaigns run by the 10 largest crowdfunding platforms in the world.

Other stories

Saudi’s Bourse To Open, Clash Of Investment Cultures Imminent
Malaymail Online

Tadawul Reforms: $50bn Funds Boost Expected
Arab news

The recent decision by the Capital Market Authority to open the stock exchange is a game-changer for Saudi Arabia.

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