August 20 2013

elb2 Back to the future for the Neu Neu thing in Germany? After DB killed Neuer Markt because none of the management wanted to stand up to the juvenile media-political backlash when risk takers lost money, now the political class need, er, a Neuer Markt Mark 2. This being Germany, expect a corporate leviathan which designates SMEs as entities with payrolls of small towns.

Meanwhile, no really, today, we really, really mean it, India is on a precipice as NSEL may default on its first payment tranche… Spicey problems for pepper at NCDX too while that thing you need to know more about, trade repositories may gain an industry body…

Public Markets

Neuer Markt ReBorn? (subscription)
The Wall Street Journal

Germany’s economy minister and Deutsche Boerse are looking at a start-up / SME exchange.

PLY: An increasingly acute problem in the boisterous tech hub of Berlin is the lack of exit routes for investors, especially given German restrictions on crowdfunding. Ministers are now keen to advance a solution and DB are looking to dust off a version of the old Neuer Markt, a wonderfully lively market in the original dotcom bubble. The problem was the bubble burst and as bourgeois western retail investors are wont to do, they complained loudly that they didn’t understand the risks, it was all a fraud, somebody must pay! (but not them). Therefore the government knee-jerked in the face of angry self-righteous liberal leftists who write for influential German magazines like Spiegel et al.

Nobody at DB could see any way to advance their career by supporting the market, and the political classes could only see short term gain, so Neuer Markt was killed off. NM didn’t last the full cycle and investors didn’t learn to stomach risk as quasi-socialist stupidity won out thus leaving us a decade down the line with a hole in German capital markets. That said, will a similarly rigid NM really be much use against crowdfunding?

…Now, if it were up to me, I would suggest Warsaw SE is in the ideal position to close the gap as it can offer better listing arrangements at a much lower cost overall than is likely at DB. They even have lots of willing retail investors too…

Nasdaq Plans Expansion In Clearing Of Nordic IRS

Nasdaq OMX plans to expand the range of interest-rate swaps it clears after processing about $15 billion of securities denominated in Swedish kronor.

PLY: OMX has made a great start in developing its IRS business via the SEK and is to be applauded for finding a very sound niche from which to expand. The contrast with NASDAQ’s failed US IDCG entity which they sold on to LCH could not be more transparent.

NYSE Remains Keen On MCX Stake Sale (subscription)
Financial Times

NYX is still planning to divest its 4.79% stake in MCX India, despite the recent price collapse.

NYX has earmarked the disposal as part of a corporate efficiency drive to cut costs and sell non-core assets. Having been free to sell the stake since a lock-up expired in March, MCX have now fallen by 75% since the start of the year…

PLY: …leaving NYX with a stake below 10 million US at close of business yesterday, nursing a loss of over 36 million from where they wanted to sell in March.

Hmmm, you could build an excellent exchange (even a couple of Aquis’ in fact) just for the money NYX have managed to lose in MCX.

Thank goodness they have a corporate efficiency drive going, just think how it might be if they were mis-managed?

CME & ICE Mull Joining New European Repositories Body (subscription)
Financial Times

CME and ICE, are among the market participants considering taking part in a new trade body.

PLY: Trade Reporitories, as I hinted last week, are the biggest thing almost nobody is talking about right now. Huge potential engines for exchange group profitability and a key element to building a coherent holistic focus across the new derivatives landscape.

Philippine SE Shut Down Monday

Philippine financial markets were shut down by regulators on Monday after hours of heavy rains overnight flooded many areas of the metropolis, similar to a situation that happened during this rainy season one year ago.

Private Markets

India: NCDEX In A Fix Over Order To Destroy 900 Tonnes Of Pepper
The Hindu

National Commodity and Derivatives Exchange (NCDEX) is facing the heat as the Kerala Food Safety Commissioner has ordered it to destroy 900 tonnes of adulterated black pepper, leaving the contract worth crores of rupees in jeopardy.

In December 2012, 6 warehouses accredited by NCDEX in Ernakulam and Alappuzha district in Kerala were sealed over complaint of adulteration of pepper stock. “We have ordered that black pepper found to be adulterated with mineral oil be destroyed immediately in concurrence with the Spice Board of India,” Commissioner, Food Safety (Kerala), Biju Prabhakar said in its order.

As per the order, about 6,000 tonnes of black pepper has been sealed after found to be adulterated with mineral oil.

PLY: Not encouraging news given the current shadow over Indian commodity exchanges caused by the NSEL crisis.


BCS Opens Low-Latency London To Moscow Link
Banking Technology

Russia’s BCS Prime Brokerage has launched an ultra-low latency data line between London and Moscow which it claims is the fastest trading connection yet built between the two cities.

Much of the trading activity for Russian stocks takes place in the LSE’s International Order book. The opportunity for arbitrage between stocks listed in Moscow and London is attractive to to HFT.

The BCS link connects Moscow’s M1 data centre and the InterXion in London, with a latency that the firm reports is below 39 milliseconds. The line works for equities, derivatives and FX.

PLY: BCS is rather like Interactive Brokers in Russia but with a growing institutional presence in Europe. Fascinating business originally from way out east of Moscow’s financial centre.

Career Paths

BGC Partners, Inc. announced the appointment of Peter Pao as Director, Greater China. He will be based in Hong Kong and will report directly to Len Harvey, Executive MD & GM, Asia-Pacific.

Mr. Pao joins BGC from Tullett Prebon where he was Chairman of Greater China and General Manager of TP Sitico.

Changes in investors/shareholders

BNP Paribas Arbitrage Buys Another 1.11% Stake In MCX India
The Economic Times

Financial services firm BNP Paribas Arbitrage today acquired 566 330 shares of Multi Commodity Exchange (MCX) (approx 1.11%) for an estimated Rs 14.5 crore (USD 2.26 mln) at Rs 255.93 (USD 3.99) in addition to the 640 000 MCX shares they bought last week for more than Rs 15 crore (USD 2.34 mln).

Special Section: FTI, NSEL, India at the Crossroads

PLY: For those of you whose summer reading involved a potboiler novel, you could have saved the ten dollars and just read our stories about MCX. After what seemed like devastation last week, we had hopes of resolution yesterday and right now we are on a precipice awaiting the first payment tranche…

Today the clock is ticking and it’s a nail-biting first payout due for payment later on. How much money has been clearing today nobody outside of NSEL knows (I thought cheques had been dematerialised). However as we go to press it may be there is not enough to expect the full anticipated payment due at 1400 GMT / 1800 Mumbai / 0800 NY.

The first payout by NSEL is due at 6 pm today local time. The exchange proposed to pay Rs 174 crore (USD 27.18 mln). NSEL has said it would seek FMC guidance in case of any deficit in payout.

“13 out of 24 members deposited money for pay-in process. We will pay investors via 148 clearing members pro-rata,” the exchange has said.

Payment Fiasco At NSEL: MMTC, PEC To Get Rs 343 Crore (USD 53.59 mln)
The Economic Times

About Rs 343 crore of state-owned trading firms MMTC and PEC is stuck with the crisis-ridden NSEL.

NSEL said that 24 members owe a total of Rs 5,574.35 crore (USD 871 mln), with NK Protein having the maximum payment obligation of Rs 967 crore (USD 151.09 mln).

The total payable amount by NSEL is Rs 5,380.53 crore (USD 840.7 mln) to 148 companies, the data showed. There are 12 companies with an outstanding payment of over Rs 100 crore (USD 15.62 mln).

Indian Bullion Market Association (IBMA) has the maximum dues of Rs 1,159.55 crore (USD 181.17 mln).

Commodity markets regulator FMC, however, has directed the NSEL not to immediately make payment to IBMA as it is related to NSEL which has 60.88 per cent equity and common directors in the IBMA.

FMC Trashes NSEL’s Figures
Business Standard

NSEL on Monday found itself stuck in a familiar situation – in the line of fire from the consumer affairs ministry, as well as the Forward Markets Commission (FMC).

Within hours of the exchange posting a detailed list of buyers and sellers on its website on Monday, FMC threatened serious action against NSEL for giving incorrect information. The regulator also raised doubts over reliability of the figures given by the exchange.

Citing sharp differences in the figures presented by NSEL on various occasions (see table), FMC said it doubted the NSEL management’s seriousness about settlement of outstanding obligations.

FMC Pulls Up NSEL For Non-Compliance

A day before the first payout by NSEL, the FMC pulled up the exchange for failing to comply with its directives, and for furnishing incorrect information even as the exchange listed the obligations of its members for unsettled positions in terms of receivables and payables.

FMC has found serious gaps in NSEL’s settlement plan. In a three-page letter sent to the exchange’s chief executive and managing director and put up on its website on late Monday evening, the commodities market regulator lambasted NSEL for not informing FMC how much money is being put into an escrow account created for the purpose daily, among other things.

Will NSEL Put The Group’s Other Exchanges In A Spot?

With NSEL Rs.5,500 crore (USD 859.37 mln) settlement hanging fire, it’s not surprising that some trading members at another FTI group other exchange, MCX, are getting jittery.

Attempts to ring-fence MCX haven’t soothed trading members’ nerves. Clearly, FMC should do more than just give directives. After all, there are outstanding positions worth Rs.16,000 crore (USD 2.5 bln) on MCX — although unlike NSEL, this entire amount isn’t owed; but only the mark-to-market difference vis-a-vis the transacted price.

Merge NSEL With Promoter FTI: Investor Forum

Investors stuck with the crisis-ridden NSEL on Monday demanded that the bourse should be merged with its promoter firm FTI which they feel is a stronger company.

The plea was made by the NSEL Investor Forum when its members met Food and Consumer Affairs Minister K V Thomas.

FMC Casts Doubt On NSEL’s Figures, Seriousness Of Management
The Economic Times

A central minister has close links with troubled bourse NSEL, alleged a BJP leader on Monday, while in a damning indictment of the NSEL board’s reliability, commodity market regulator FMC said it had failed to furnish correct details to FMC on payments to be received and paid and the amount deposited in the escrow account daily.

BJP leader Prakash Javadekar alleged that NSEL had “close links” with a “minister” in the central government, PTI reported.

“This is a new spot scam. People bid in the name of commodities and earn money. People invested money Rs 6,000 crore (USD 937.5 mln) of investments are involved…What the government is doing for the general investors?” PTI cited Javadekar as having asked.

PLY: The politicisation by the opposition BJP has been increasing of late and usually once such political arguments occur that does not help produce clarity or resolution…

Govt Does Not Rule Out Default In First Payment
Business Standard

The government today said there might have been default in the first payment of dues by the crisis-ridden NSEL on August 16 and wanted the exchange to take action against defaulters according to its own bye-laws.

Meanwhile, the exchange came out with a list of debtors and creditors on its website today.

Investors Move High Court Against NSEL
Business Standard

Even as a group of investors moved the high court here on Monday against NSEL on the payment crisis, Kirit Somaiya, president of Investors’ Grievances Forum said the list of sugar stocks that NSEL filed to the FMC was bogus.

Somaiya, national secretary of the Bharatiya Janata Party, visited the warehouses of two defaulting companies, Mohan India and Tavishi Enterprises, at Village Khera Kalan in Delhi. “There were no stocks at the warehouses.”

Now, Jignesh Shah, Massey ‘Concerned’ About NSEL Stocks
Business Standard

NSEL directors Jignesh Shah and Joseph Massey expressed concern on the quantity and quality of the stocks in the exchange’s warehouses before commodities market regulator FMC last Tuesday even as NSEL’s CEO Anjani Sinha assured investors and other stakeholders there was enough stock to cover the liabilities.

Will NSEL Crisis Affect Banks And Finance Companies?

Banks and finance companies are also joining the long list of aggrieved parties.

While launching the equity exchange, MCX-SX Promoter Jignesh Shah, assured high returns to his investors. MCX-SX which is part of MCX and Financial Technologies promoted by Shah, was the first exchange to be listed on BSE.

It attracted many investors who subscribed to the issue. Along with them, 16 banks and 2 financial institutions invested too, and own a major pie of the newly listed exchange. According to MCX –SX share holding pattern, the bankers and financial institutions stake in the exchange is as large as 88.52%.

Special Section: China – Everbright Security

For one day only, background to that fat finger which doomed Everbright last week when they inadvertently loaded up on rather a lot of stock:

Everbright Securities Restricted From Stocks, Futures Trading
The Asset

Everbright Securities (EBS) has been suspended from building new stock index futures positions from August 19 after an error in the brokerage’s arbitrage system pushed up the country’s stock indexes by nearly 6% on August 16, according to a statement of the China Financial Futures Exchange.

The Shanghai branch of the China Securities Regulatory Commission (CSRC) has also ordered a suspension on EBS’ proprietary trading in the spot stock market for three months until November 18.

PLY: A big fat finger of blame has landed on EBS after a similarly big fat finger bought rather a lot of stock…EBS’ placing stock orders totalling 23.4 billion yuan (US$3.82 billion), of which 7.27 billion yuan was actually traded.

Because of the T+1 system in the domestic stock market, EBS could not sell shares on the same day, thus it built a total of 7,130 lots of short positions in the index futures market and overall, EBS made a loss of 194 million yuan because of the error in the arbitrage system at its strategic investment department’s proprietary trading bureau.

China Investigates Everbright Trading Glitch (subscription)
The Wall Street Journal

Confidence in China’s equities took a fresh blow after a rogue trade sparked wild swings in the market, which analysts say could further deter investors from one of the world’s worst performers this year.

Everbright Says Will Not Sell Shares Bought As Result Of Trading Glitch

China Everbright Securities said it will not sell shares purchased as a result of an internal trading error on Friday that helped push the Shanghai Composite Index up over 5 percent on Friday, until further notice.

In a filing to the Shanghai Stock Exchange on Monday, the brokerage said the company will make an announcement once it decides on how to handle the shares.

Share Notes

CME Director, Alex J. Pollock, bought 350 shares on August 14th at an average price of $73.94 (bargain $25,879.00)

CME Insider Derek Sammann sold 10,530 shares Thursday, August 15th at an average price of $74.78 (bargain $787,433.40). He now owns 18,100 shares.


What Crowdfunding Means For Franchising

Crowdfunding has made a big splash helping entrepreneurs launch donut shops, produce albums and create smart watches; theoretically, it’s a perfect vehicle for franchising.

PLY…and it will all be much more rosy when the SEC enacts the JOBS Act rules.

Other stories

SGX Seeks To Reduce Standard Board Lot Size To 100 Units
Channel News Asia

SGX is seeking to reduce the standard board lot size of securities traded on the exchange from 1000 shares to 100 at first and subsequently a single share.

Current lot sizes vary between 1 and 80,000 shares in Hong Kong and range from 1 to 3,000 shares in Tokyo while most major stock markets trade in standard board lot sizes of either one or 100 shares.

SGX said the proposed move to reduce board lot sizes in the local market will align it with global practices.

This will also make trading of blue chip stocks more affordable, so that retail investors need not be limited to lower-priced penny stocks.

PLY: One of the trundling reactionary moves which stock exchanges retained as fixed commissions evaporated was the lot size requirement while even in open outcry days it was still possible to execute a one lot in the largest futures pits on the planet. In modern electronic processed markets, the concept of a lot size is a total anachronism and while it will reduce bargain averages it will always help liquidity at the retail level and encourage investment. It does not materially impact the need for Institutional Liquidity Platforms for trading between institutions in block sizes – they are always at a vast multiple of even the 3000 share lots in some Tokyo stocks.

India: BSE, NSE To Shift More Stocks To Restricted Trading Segment
Business Today

Bombay SE and National SE will move scrips of 54 and 12 firms respectively to the restricted trading segment from August 23 for their failure to convert a mandatory 50 per cent public shareholding into dematerialised format.

Besides, as many 442 scrips on the BSE and 19 stocks on NSE will continue to remain in ‘T’ group since they have not complied with the 50 per cent demat criteria.

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