August 21 2013

elb2 If this is summer, we’re a bit worried we may be overloaded when it gets back to ‘normal’ business!

NSEL’s default looms large while fat fingers, virtual or not dominate headlines in US options markets and at Everbright which seems determined to indulge in some form of low latency ritual suicide bid. Meanwhile Goldman Sachs has apparently acted in sympathy way across the Pacific.

Scroll, scroll and scroll thrice again, there is lots of good stuff here, in emissions, forex, and career paths too (Sobolewski approved by Romanian regulators to run BVB):

Public Markets

LME Offers CEO Job To Triland Metals Executive Martin Pratt?

LME has offered the CEO job to Martin Pratt, picking a veteran broker to lead the bourse through the most tumultuous period in its 136-year history.

The 42-year-old Pratt, now chief operating office at Triland Metals Ltd, a non-ferrous metals futures broker owned by Japan’s Mitsubishi Corp, was chosen over LME COO, Diarmuid O’Hegarty, and Garry Jones, a former CEO of NYSE Liffe.

PLY: Frankly shock news. The word on the street had Garry Jones in pole position while I thought Diarmuid O’Hegarty was ideally placed for the top job. We await confirmation of Mr. Pratt’s elevation…

Finally, I disagree that the current warehouse bickering and being bought by HKEx amount to the “most tumultuous period in its 136 year history.” Tin for one was a multiple of anything currently happening – that threatened the very bedrock of London’s financial centre infrastructure at the time…

NYSE Said To Choose JPMorgan, Societe Generale For Euronext IPO

NYX has tapped JPMorgan Chase & Co. and Societe Generale SA to help arrange the IPO of its European equity operations.

PLY: I am still sceptical we will see an IPO happen. ICE will be better served simply dispensing with the deeply dysfunctional Euronext entity and moreover there are various bidders in the wings who would like to swallow the group whole or buy each of the former national units. That said appointing IPO bankers is a good way to fire the “bidders start your engines” firing pistol.

Moreover, no matter how you look at it, this whole deal was a fiasco for NYSE as it comprehensively failed to integrate Euronext in any meaningful way (even within Europe) and with Euronext worth maybe 2 billion tops, it is hard to value LIFFE as the difference of the $14.3bln NYX paid towards the peak of the market NB ICE is swallowing NYX-Euronext whole at approx $8.2bln.

NYSE-Euronext: A deal that promised so much ultimately laid bare the truth of the abject mediocrity of many exchange managers.

SGX Publishes Annual Report

Read the Report here.

Goldman Sachs Said To Send Stock-Option Orders By Mistake
NYSE Amex Options Reviewing Large Number Of Erroneous Trades
Nasdaq, CBOE Says To Review Batch Of Options Trades
The Economic Times

A programming error at Goldman Sachs caused unintended stock-option orders to flood American exchanges Tuesday morning, roiling markets and shaking confidence in electronic trading infrastructure.

An internal GS system used to help prepare to meet market demand for equity options inadvertently produced orders with inaccurate price limits and sent them to exchanges.

PLY: I must admit to still feeling the easiest way to get firms to concentrate on their programming errors is to make the banks wear their losses. Simply busting the trades when everybody has been inconvenienced strikes me as eroding trust in electronic markets. After all, had they all been making profit, would the trades still have been busted? Certainly proportionate penalties for those causing the chaos would be welcome.

Philippine – Markets Shut Anew
Business World Online

HEAVY RAINS continued to batter the Philippines yesterday. Financial markets, government offices and many businesses were shut for a second straight day in the capital,

Private Markets

India: NCDEX Seek Nod To Clean Adulterated Pepper Stock
Business Standard

Leading agri-bourse NCDEX, facing the heat from Kerala government over adulterated black pepper stock, today sought official permission to remove harmful mineral oil coating from the 900 tonne spice stock valued at around Rs 350 crore (USD 55.28 mln).

“The exchange does not have any liability regarding these stocks,” said NCDEX.

PLY: Clearly a spicy issue of warehouse quality and it seems NCDEX are doing the right thing in offering to try to make the pepper unadulterated.

Government Seized $2.9m From Bitcoin Exchange Mt. Gox

The US government seized over $2.9m from Mutum Sigillum LLC, a subsidiary of bitcoin exchange Mt. Gox according to court documents.

Thai Bourse Shortens IPO Schedule To Speed Up Listing Process

The Stock Exchange of Thailand (SET) will shorten the IPO time frame to enable IPO shares to trade on the exchange within three working days after the subscription date ends, down from the previous four working days, effective from September 9.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Following on from our special edition yesterday as the news broke that NSEL had failed to make its payment, the fall-out today has been predictably large.

FTI was in freefall at the open, eventually finding support at 20% down before rallying to be ‘only’ 12% lower at the time of writing! MCX on the other hand seems to have assured the market of its financial probity and is again limit up 5% at the time of writing.

It transpires NSEL repaid some Rs 92.12 crore (USD 14.55 mln) out of the scheduled Rs 174.72 crore (USD 27.59 mln) payment it had committed to the sector regulator FMC. Slightly better than the Rs 81.13 crore (USD 12.67 mln) initially reported but still significantly short of the full amount anticipated.

Looked at optimistically, NSEL needs to get 865 million dollars in 29 weeks to satisfy all amounts outstanding. Does that sound plausible given week one’s payment was 13 million short?

Meanwhile, NSEL is being accused of lacking ‘fit and proper’ credentials and has turned to an old SEBI hand to try to oversee the chaos within the organisation, following the broad sacking of senior management as the default occurred yesterday.

Finally spare a thought for the brokers: who it appears may not be quite so blameless as their protestations of last week suggested.

NSEL is a story of chaos driven by mania, fuelled by greed. Sadly, mass bankruptcy and madness awaits many caught up in this fiasco.

NSEL Sacks CEO Anjani Sinha; Pays Only Rs 92 Crore To Investors
The Economic Times

Financial Technologies Slips 20% As NSEL Defaults On Payout
The Economic Times

The New Man At NSEL
Business Standard

Experienced former SEBI staffer P R Ramesh, who has also worked with FTI, is set to take the reins at NSEL as an Officer on Special Duty.

He will be part of a team the exchange is planning to appoint: “I will be one of them. To say I am going to have powers of a CEO is not correct.”

However, the NSEL statement suggests his role will be key. “The Board of NSEL has appointed Mr P R Ramesh as the Officer on Special Duty (OSD) to exercise all powers of a CEO of the Company and will report to the Board directly,” said the statement.

FMC Warns NSEL Of Losing ‘Fit & Proper’ Tag As It Falters On Payout
The Economic Times

Hours after NSEL failed to meet its first payout, commodity market regulator FMC shot off a letter to the bourse’s board saying it risked losing its “fit and proper person” status, and warned that in the event of such an “eventuality” it could not continue to hold directorship or shareholding in MCX or any other recognised commodity futures exchange.

PLY: A direct shot across the bows of Jignesh Shah and Joesph Massey, leading FTI/MCX figures…

Long Battle Awaits NSEL Investors
Business Standard

NSEL Investors’ Forum may file a suit against the exchange and its promoters. Legally there are many options available for the anxious investors who have their money stuck in this mess.

Will Take Legal Action Against Promoters, Auditors: Motilal Oswal On NSEL
Business Standard

Like other leading brokers in Mumbai, Motilal Oswal, Chairman of Motilal Oswal Financial Services, is the man in the middle of a payment crisis in NSEL now haunting Mumbai’s financial markets.

Motilal’s own clients are after them to get back their dues to the tune of close to Rs 260 crore (USD 41.06 mln).

NSEL Controversy: Sahara Entity Has Exposure Of Rs 227 cr (USD 35.85 mln)
Indian Express

Sahara Q Shop Unique Products Range Ltd has the highest outstanding exposure among all entities that traded on NSEL through Indian Bullion Market Association (IBMA) with a total exposure of Rs 226.96 crore (USD 35.85 mln). This accounts for nearly 20% of the total outstanding exposure of IBMA at R1,171 crore (USD 184.96 mln).

PLY: Remember IBMA is de facto an NSEL subsidiary. Also note that IBMA clients can now be paid after clarification from FMC and they received a portion of the first tranche yesterday.

NSEL: 3 Ignored Queries Throw Up 3 Investing Lessons

PLY: A splendid analysis which educates investors and discusses the key failings all along as it becomes increasingly clear the exchange and brokers had been involved in a mania built on allegedly riskless lending and significant annual returns…

Are Brokers As Blameless As They Claim?

It is not often that you see the shrewd stock brokers of Dalal Street crying hoarse that they have been taken for a ride. And that too, coming from some of the seasoned players in the industry.

With more evidence surfacing of the flimsy risk management systems at the National Spot Exchange, there is reason to believe that the entire spot commodity trading operation on the bourse was being run on the lines of a Ponzi scheme.

PLY: I remarked last week that shrill broker complaints often merit some consideration. The emerging picture is not encouraging. It appears brokers lent money to HNW clients at 10-12% so the clients could make 15-16% on a ‘risk free’ ‘assured return’ basis.

Special Section: China – Everbright Securities

Everbright Securities Fiasco Casts A Shadow (subscription)
The Wall Street Journal

A recent misstep by a Chinese brokerage has highlighted how smaller and midsize firms are struggling to keep up with authorities’ efforts to modernize the country’s financial markets.

After Everbright Securities Co. accidentally flooded the Shanghai SE with buy orders on Friday, investors have punished the shares of the brokerage and other similar-sized firms, amid growing doubts that the companies have enough experience and risk controls to handle complex trading strategies.

PLY: …Unlike the paragons of Wall Street virtue such as the incomparable Goldman Sachs who would NEVER make such an error in something like equity options. Oh, hold on a moment…

Everbright Bungles Bond Trading After Stock Error
The Asset

An Everbright Securities (EBS) employee mistakenly sold 10 million yuan (US$1.63 mln) of government bonds with a yield of 4.20% in the interbank market on August 19. The yield was 25bp higher than similar bonds at Friday’s close.

The incident came after the mainland brokerage unintentionally bought 7.27 billion yuan (USD 1.18 bln) of stocks Friday morning that caused a hike of nearly 6% in the domestic stock market. EBS blames the transaction error to a flaw in its arbitrage system. Its proprietary trading department has been suspended from stock trading or building new stock index futures.

EBS says it is in talks with the counterparty to unwind the bond deal.

PLY: Interesting how China has talks to unwind the trades when they are mostly just busted in the US. Again I think the best way to help clean up technology errors is by causing the maximum inconvenience to the perpetrators of the errors.


Moscow Exchange Successfully Consolidates Trading Platforms

Moscow Exchange has successfully finished consolidating its Securities, FX, and Derivatives Markets” trading platforms within a single technological venue the Moscow M1 data center.

TMX Quantum XA Implementation On TMX Select Complete

TMX has successfully implemented its new high performance trading engine, TMX Quantum XA™, on TMX Select.

TMX Select was the first TMX equity marketplace to shift to the TMX Quantum XA platform. The migration of Toronto Stock Exchange, TSX Venture Exchange and Alpha onto TMX Quantum XA is planned to begin mid-2014.


Eurex To Launch Forex Derivatives

Eurex will enter the foreign-exchange market for the first time in a market led by CME.

From Oct. 7, Eurex will offer etd on the 6 currency pairs where the bulk of over-the-counter trading takes place.

PLY: The story notes Forex volume was a record $5.7 trillion a day in June, according to the latest data from CLS Bank. Futures are a minuscule fraction of this. This is not so much a ploy to develop a major forex share as a means to try to slow down development of CME Europe. In an era where NASDAQ have a “me too” exchange, several bourses are now immersed in copycat culture while the really big fish are absolutely elsewhere. In essence, like the CME-ICE oil fight, this is a proxy war to try to maintain the key interest rate contracts in the current silos.

ICE Could Shake Up London Sugar With Container Delivery

ICE is looking at increasing volume in LIFFE white sugar futures offering container delivery, catching up with a growing trend in the industry.

With about a third of the 25 million tonne per year world refined sugar trade shipped in containers, traders see that change as a major focus for post-purchase discussions, along with margin requirements, use of lower quality sugars and trading hours.

Currently, the white sugar futures contract only accepts deliveries in large bulk vessels, which some users say is outmoded given the quick growth of cheaper containers.


EMEA Leads The Way In Stellar Month For FTSE Mondo Visione Exchanges Index

PLY: The MV Exchange index continues to expand from its considerable 10% upswing in January and is now up 17.4% on the year despite the travails of MCX impacting the index during July. LSE has been the biggest gainer in the field this year.

The full report can be read here.

Career Paths

SGX announced the proposed appointment of Mr Ng Kok Song as an independent director of SGX.

Mr Ng is presently Advisor and Chair of Global Investments at the Government of Singapore Investment Corporation (GIC), following his retirement as the GIC Group Chief Investment Officer in February this year.

SGX shareholders will vote on the proposed appointment of Mr Ng at the Fourteenth Annual General Meeting (AGM) on 19 September 2013.

The Romanian FSA today approved Ludwik Sobolewski, ex- Warsaw SE CEO, as the the CEO of Bucharest SE (BVB).

Financial Calendar

ASX will release its 2013 full-year results tomorrow.

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

Share Notes

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, the sale of 2,000 shares at an average price of $16.78 (bargain: $33,560.00) reported on August 13th, and the sale of 2,000 shares Monday, August 12th at an average price of $17.02, (bargain $34,040.00) reported on August the 16th Interactive Brokers SVP Milan Galik sold another 2,000 shares Friday, August 16th at an average price of $17.16 (bargain $34,320.00). He now owns 816,604 shares.

Analyst Notes

CME: Buy This Stock’s Breakout For A Chance at 17% Returns

CME: Up 41% In 2013 As Fed Drives Volatility

The entire industry has had a great year. I’ve been recommending ICE for years, up 45% in 2013. The Nasdaq OMX Group, Inc. (NDAQ) has also been strong, gaining 20%.

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.


Razoo Expands Crowdfunding-For-Causes Platform To Support People In Need

Razoo CEO Lesley Mansford the veteran gaming executive has applied her expertise to fundraising for non-profits, and now Razoo is entering the world of peer-to-peer donations using 24 hour rolling campaigns called “Giving Days” that use gaming principles to motivate people to donate.

Other stories

NYSE Builds Business Around Resilient Infrastructure Services
PC Advisor

After the terrorist strikes of Sept. 11, 2001, the New York Stock Exchange (NYSE) learned some valuable lessons in keeping a time-sensitive financial trading network alive during a time of crisis.

So, when Hurricane Sandy struck last year, NYXT was prepared to continue operations, though the NYSE itself decided to halt trading, citing concerns with employee safety and other factors.

NYXT built and now operates the SFTI (Secure Financial Transactional Infrastructure — pronounced “Safety”), which is used by financial firms and by the NYSE itself for its primary and backup exchanges. SFTI has access centers in most major markets in the U.S., Europe and Asia.

Free Market Is Best Way To Combat Climate Change
Energy&Environment Management

The best way to reduce carbon emissions and combat climate change is through the use of market forces, says a new study.

Researchers who monitored the effectiveness of the European Climate Exchange (ECX) – the world’s biggest carbon trading platform – found it to be as efficient as Europe’s two biggest exchanges, the London Stock Exchange and the Euronext Paris.

PLY: A useful affirmation of two things everybody ought to know:

1) Exchanges are the best mechanism for driving commerce efficiently, cheaply and swiftly;
2) Government action isn’t any of the above.

This, even more than any other, is the age of the exchange.

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