August 19 2015


First up, an apology to all our Premium subscribers who have suffered login problems of late. However, my modest tech team have re-engineered the back end system overnight after a vendor simply gave up on trying to fix their problems. (No, you cannot make that last sentence up!). It is all working now – again apologies to all supporters of this service which helps keep this daily newsletter free…

In the Exchange parish, what an interesting day…

ICE makes significant Corporate Communications hire from WalMart as Thomas Peterffy asks his shareholders for feedback on why they own his stock but don’t buy his coffee, as it were. FTIL opts for ‘spacey’ name as the Jignesh pivot creaks forth (and worryingly, perhaps away from any obligations to NSEL). Dar Es Salaam listing accelerates, CME Ventures discusses focus, Pakistan merger agreement reached, while those reading the Auger story may find their heads popping off their shoulders – don’t say I didn’t warn you.

Public Markets

NZX H1 2015 Results

NZX Bullish Despite IPO Fall
Christopher Adams – NZ Herald

vs H1 2014: total revenues $34.4 million (USD 22.6 mln), up 10.4%, EBITDAF $11.7 million (USD 7.7 mln), down 3.6%,

PLY: Note, reported net profits benefit from the 50% stake sale in Link Market Services.


IBKR 2015 Mid-Year Report & Letter To Investors

PLY: A fascinating letter from IBKR founder Thomas Peterffy, noting how IBKR has 25000 shareholders but only circa 2200 have brokerage accounts, leaving him to ask for input as he ponders the quandary “This would be as if 90% of SBUX shareholders had never visited a Starbucks to try the coffee. It is very surprising to me.” The feedback will doubtless be interesting in response to Mr Peterffy’s interesting and intelligent initiative.


Navinder Singh Sarao Part 2: Scapegoat For A Crash? (subscription)
Philip Stafford, Lindsay Fortado & Jane Croft – Financial Times

Depiction of malevolent trader who masterminded market mayhem has received scepticism.

Part 1 – yesterday.

Navinder Singh Sarao was freed on bail, as reported earlier this week.

PLY: The FT warms over the details once more which can only increase pressure on the CFTC (amongst others) for apparently missing this for 5 years while the hysteria of US Prosecutorial hyperbole ought to be suitable grounds for an outbreak of British government to break the current one-sided extradition treaty. Sarao may not be an ethical individual, he may well be a criminal for misleading markets but he is not a master criminal.

Neat quotation from the pithy Phupinder Gill recorded at IDX this year by Phil Stafford:

“Spoofing on all our markets is against the law, but what’s spoofing and what’s ‘changing your mind a lot’? We’re working with regulators to find common ground,”


‘Flash’ Events Hurt Market Liquidity For Days: N.Y. Fed Blog

Read our Premium The Kennel – Premium discussion of the “Hound of Hounslow”.


CME Futures Draw More Currency Traders Than Ever Amid Bank Fines
Lananh Nguyen – Bloomberg

CME said its fx futures contracts are attracting more traders than ever as investors seek safety in exchanges after banks paid billions of dollars to settle claims of currency manipulation.


The number of large participants holding open interest on CME’s currency contracts surged 16% from the end of last year to a record 1,007 this month. An average 892,000 fx contracts changed hands daily on the exchange this year, up 28% from last year.


18 Months In, CME Ventures Has Sharpened Its Focus
Kate MacArthur – Chicago Tribune

Since CME launched its startup investment arm CME Ventures 18 months ago, it has refined its investment focus and taken stakes in six companies: 1QBit, Dwolla, Nervana, Powerlytics,  Ripple Labs, Wickr (more info here). It flushed out one investment target from an unlikely source: an internal CME human resources program. Rumi Morales, executive director of CME Ventures, explains.

PLY: Neat line from Rumia Morales: “the Board of Trade we’ve been here since 1848. I ask startups, “Is your company going to be around in 170 years, and if so, what will it look like?””

– Given most of the fintech folks around nowadays have been active in the field for under 170 months and often 170 weeks or less, it’s a very very fair question to ask.


CFTC Exempts ASX Clear From Registration As A DCO
Mike Fox – LeapRate

CFTC issued an order of exemption from registration as a derivatives clearing organization (DCO) to ASX Clear (Futures) Pty Limited (ASX). The order is the first issued by the CFTC based on its authority under Section 5b(h) of the Commodity Exchange Act.


CFTC Seeking Public Comment On Petition By Korea Exchange From DCO Registration Exemption

Behave Or Else: SEBI Chief Warns Stock Exchanges On Data Fudging
K Raghavendra Rao – The Hindu Business Line

SEBI Chairman UK Sinha has put stock exchanges on notice. Reacting to allegations of data fudging and misuse of HFT, he said exchanges must not get the impression that the regulator will always let them off with a warning.

Private Markets

Tanzania: DSE Self-Listing To Fasttrack Bourse Operations
Abduel Elinaza – Tanzania Daily News

Dar es Salaam SE (DSE) plans for self-listing early next year with a view to efficiently executing its mandate.


KSE-ISE Merger Finalised But LSE Still Out
Salman Abduhu – The Nation

The demutualization committees of the Karachi and Islamabad stock exchanges have reached a deal for their merger while Lahore SE has failed to strike any deal in this regard so far. The management of both the exchanges will announce their merger deal very soon. Both markets are trading their shares through a single Unified Trading System.

Read our Premium Pakistan Exchanges Merger Brief.


Lahore SE: New Timings For Pre –Open & Close Of Market

Auger Launches Crowdsale For Decentralized Prediction Market Platform
Leon Pick – Finance Magnates

Dividend News

NZX – interim dividend 3.0 cents, record date 2 September 2015, payment date 16 September.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL flat as FTIL gains whacky new hippy name to try to distance it from, well, FTIL…the Jignesh pivot is upon us it seems:

FTIL Changes Name To 63 Moons Technologies Ltd
Ashish Rukhaiyar – Livemint

“As you are aware, the company has announced on November 20, 2014, its vision of ‘Digital India @ 2015’, the engine driving the transformation of FTIL into making F 3.0 the de facto ‘powered by’ technology partner of choice to create and develop digital ecology leveraging SMAC (social media analytic and cloud) technology stack. Hence, it is imperative to give the company a new name and identity that reflects the genesis of its business and the next phase of growth,” said the company statement.

“For the name, we drew the inspiration from the 63 moons of Jupiter, the most powerful planet in the universe that stands for knowledge, wisdom, foresight and above all growth and prosperity” a letter to shareholders said.

PLY: NSEL creditors presumably retain a hope they can boot Jignesh Shah into orbit alongside said moons…

FTIL’s Decision To Pay Dividend Angers Investors Of NSEL
Ashish Rukhaiyar – Livemint

Investor associations that have complained against FTIL to the government and regulatory agencies say that the move by the FTIL board amounts to asset stripping at a time when the courts have barred FTIL from selling any immovable assets.

PLY: The forced merger construct is stupid but the idea that FTIL can lose money yet pay dividends is transparently at odds with an FTIL which expects to meet its dues for the mess it helped create in NSEL.

Read our Premium NSEL Scandal Brief – Main File.


Glitch Causes Temporary Halt In PSE trading
Paolo Taruc – CNN

An error in the Philippine SE’s (PSE) online platform, PSETradex, caused the market to halt for nearly 45 minutes on Tuesday (August 18), reportedly due to incorrect reference prices. Trading stopped at around 10:31 a.m. and resumed at 11:15 a.m.

PLY: The problem was related to the PSETradex online OMS developed by Malaysian vendor N2N Connect Berhad. The NASDAQ platform was not the issue in this glitch.

FAO: PSE migrated to the PSEtrade XTS trading system, powered by Nasdaq’s X-stream Trading in June 2015. The new system replaced the NYSE Technology powered PSEtrade NSC rolled out in 2010. PSEtrade replaced the MakTrade system used since the 1990s. N2N Connect Berhad was engaged to provide the PSETradex online system in 2013…


SS&C Acquires Citi’s Alternative Investor Services Business

SS&C Technologies announced the acquisition of Citigroup’s Alternative Investor Services business, which includes Hedge Fund Services and Private Equity Fund Services, for $425 million, subject to certain adjustments.


Fear & Loathing In Fintech Vendor Land
Pascal Bouvier – American Banker

PLY: Mostly bank related but discussing how the banks are hampered by their own fear of change despite their current vogue for repackaging others’ buzz phrases and claiming the desire to ‘get down with the kids’ and develop modern fintech.

HFT Can Be Useful but Extract Tolls From Investors, Univ Of Md Professor
John D’Antona – Traders Magazine

Bitcoin Could Split In Debate Over Currency’s Future

Bitcoin XT, is currently being recommended by the currency’s chief scientist, Gavin Andresen. And its developer, Mike Hearn, says its adoption essential to ensure the currency can cope with growing demand. But some, including a large number of bitcoin miners in China, are resisting XT because of how it might affect control over the currency.

PLY: The Blockchain size issue. A wondrous example of bumps in the carpet risk applied to fintech – which of course raises a side question: what hope have existing analogue low budget regulators got of coping using existing structures? Less than the value of the least popular altcoin I would contend…


UBS’ Fintech Challenge To Put Spotlight On Blockchain?
Nikhil Gupta – newsBTC

UBS worldwide competition named the “Future of Finance Challenge” for the technology startups and the entrepreneurs is going to cover the blockchain applications and technologies, cryptocurrencies and digital vaults.

PLY: It’s always good to see, eventually (it only took about 20 years), big blob firms like UBS opting to popularise moniker’s like ‘the future of finance’ – which I used to raise eyebrows amongst various linear legacy folk even before my 1999 “Capital Market Revolution!” book and subsequently much else besides. Maybe banks could adopt the moniker: “nothing new under the sun” it would be more apt methinks?


Did The Volcker Rule Really Harm The Bond Market?
Ellie Ismailidou – MarketWatch

Suddenly, everybody is talking about liquidity in the bond market — or the lack of it.

Even the New York Fed — one of the world’s biggest government-bond traders, since it executes transactions on behalf of the Federal Reserve — has chimed in. On Monday, it released the first of a series of research articles on liquidity in the government-bond market.

PLY: The fact that there are hordes of PRs being paid by both banks and upstart platforms to shout fire in a crowded room, is nothing new indeed. Anybody who comes in from the outside and reviews the bond market would often be appalled by the fetid mess which is the costly bank-centric fiasco of a market barely getting to grips with the telephone, let alone digital innovation.


LSE Welcomes World’s First Green Masala Bond To Its Markets

PLY: Interesting innovation even if climate change is unproven.


Nomura’s Instinet Gets Approval For Research Payment Service

Instinet is launching a new payment management service for equity research that is unbundled from trading commissions paid by clients, ahead of planned rules to make trading payments more transparent.

PLY: If you start in the 3D world of derivatives, looking at equity markets is such a step backwards as to be almost scary (not bond market scary, just weirdly scary in the way that government servants can always overly complexify any simple process). The equity markets are the world’s most exquisite ‘complexifiers’ – they make even banks look like amateurs. Thus, I have to admit it’s time I emerged from the closet as an unbundler. It’s one of those things where everybody nods when the topic is raised and most folks hope the meeting will end soon. Hmmm, charging huge commissions to wholesale clients to send them research notes…no clearly all those arguments have done nothing for me it seems. Unbundle away Instinet! Oh and bankers beware: you sack your analysts (even the useless ones – which is a lot of their number imho) at your peril as you haven’t priced their worth properly in your haste to charge for them up front…


CBOE Launches Hedge Fund Benchmarks With Eurekahedge

CBOE launched four new benchmark indexes in collaboration with Eurekahedge that measure the performance of hedge funds that employ volatility-based investment strategies. Values for the new indexes will be available on CBOE’s and Eurekahedge’s websites beginning August 18.


Commodity Indexing Embraces New Methods (subscription)
Gregory Meyer – Financial Times

Career Paths

IR Magazine reports that Carol Schumacher is leaving Walmart after more than a decade to become head of corporate affairs at ICE.

PLY: Interesting move at ICE, with the simply brilliant Kelly Loeffler bringing a seasoned professional to work under her in corporate affairs. A great hire by ICE as the business continues to progress on multiple fronts.

Finance Magnates reports that Fidessa appointed Andy Skelton as CFO, move is effective from October 26, 2015.

Mr. Skelton will be replacing Andy Malpass. Mr. Malpass will remain an executive director until the announcement of Fidessa’s 2015 preliminary results in February 2016, having been finance director for over 20 years.

Mr. Skelton joins Fidessa from CSR plc, a semiconductor company, having served as its Deputy CFO until its recent acquisition by Qualcomm Incorporated.

PLY: I can’t help but note that Mr Skelton once worked at Ericsson, which once made a lot of cell phones and are now a microcosmic irrelevance in the history of mobile telephony. There is a widely whispered fear gaining ground that this is also the dangerous abyss above which Fidessa wobbles, alongside the likes of Sungard whose legacy systems frequently, to put it politely, predate what has become commonly termed the modern digital era.

SEC named Shamoil T. Shipchandler as Regional Director of its Fort Worth Regional Office.


GMEX Group Subsidiary GDI Announces Index Oversight Committee

Chaired by Mark Blundell, members include Richard Metcalfe, Director of Regulatory Affairs at the Investment Association, Matthew Evans, Head of Data Sales at Tradition, Paul Ribbins, Head of the Risk Management Services Division at Tullett Prebon & Huw Davies, portfolio manager at Old Mutual Global Investors alongside GMEX compliance, technology & NEDs including Sandy Broderick.

PLY: This oversight committee is in good hands under the stewardship of Mark Blundell.

Delta Capita, an international consultancy specialising in delivering business and technology solutions to financial services organisations, appointed Kevin Covington as a NED to its Board.

Financial Calendar

This week

20.08 – ASX Full-Year 2015 Results

20.08 – Record date Thomson Reuters $0.335 quarterly dividend

21.08 – Record date TMX $0.40 dividend

21.08 – Record date BGC Partners’ BoD $0.12 dividend

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

Analyst Notes

AlphaValue Reaffirmed “Add” Rating On LSE – GBX 2,725 Price Objective

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

Other stories

Citigroup To Return $4.5 Million More In Fee Overcharges
Karen Freifeld – Reuters

Citigroup Global Markets Inc (CGMI) has agreed with the New York attorney general to return $4.5 million in account management fees charged on some 15,000 frozen accounts. As a result of the agreement, a total of more than $20 million will be refunded to Citi customers for overcharges in an investigation initiated by New York Attorney General Eric Schneiderman.


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