August 22 2013

elb2 ASX’s profits are almost as stagnant as their management while the scandal of Goldman walking away from potentially hundreds of millions in options liabilities throws a cloud over all organised markets. ICE hire bankers to de facto invite private equity to take Euronext off its hands, er, organise an IPO while HKMEX claims innocence in the midst of fraudulent papers being circulated. Meanwhile Bloomberg seems to be turning into Reuters, and ICE offers a free calculator:

All this and more, alongside the demise of Jignesh Shah and the ongoing NSEL farago, scroll on…

Public Markets

ASX Full-Year Result To 30 June 2013
ASX

PLY: ASX appear swift to note how trading conditions were especially challenging as their unsustainable monopolistic status remains under threat (thankfully!) by interloper incumbents focussed on novel concepts such as service and value for the clients in the local market.

Net profit increased 2.7% to $348.2 mln (USD 313.7 mln) with Earnings per share 195.5 cents (USD 176.1 cents), up 2.6%. Given that operating revenue was only up 1.1% at $617.4 mln (USD 556.21 mln), it was interest and dividend income $53.5 mln (USD 48.19 mln), up 7.4% which really created the modest profit growth.

Note that cash operating expenses stood at $146.2mln (USD 131.71 mln), up 3.6%, so even the long-standing management ’strategy’ of obsessive cost controls at the expense of developing the market seems to have run its course. ASX once sparkled but is now a drab, reactionary monopolist ill-suited to the modern competitive exchange marketplace locally or internationally.

Read the media release here.
Read the Annual Report here.

Bad Trades’ Ripple Effect (subscription)
The Wall Street Journal
SEC Investigates Goldmans Error
Reuters

Goldman Sachs won a preliminary victory to limit losses from their wave of erroneous trades that roiled U.S. options markets on Tuesday.

After hours spent reviewing thousands of transactions, U.S. options-exchange officials on Wednesday decided to cancel most of the trades caused by a technical glitch in a Goldman trading system.

PLY: Wrong! Wrong! Wrong! Alas whatever precepts were used to cancel these trades, this is an utterly wrong-headed approach. Collectively the US options industry needs to lead the way here and fight back for the rights of all traders and not just a sundry few oligopolists whose errors sully the sound workings of exchanges and indeed threaten losses on all other market participants. If that means changing the rules, please change them.

Goldman needs to bite the bullet, take the potential hundreds of millions of dollars in losses and take responsibility. That, if nothing else, will help encourage trading counterparties to trim the risks they are running with automated systems. Goldmans let the orders run through whatever internal risk management they have so they are good for the trades. (If they didn’t have suitable internal risk management then they must also face significant regulatory penalties – the Chinese wisely banned a whole Everbright department while they investigate that farago, sounds like a good approach here too).

In the old days one great facet of open outcry markets was that traders stood by the motto of the London Stock Exchange: “My word is My Bond.” Nowadays giant counterparties trying to weasel out of their obligations brings shame on exchanges and discredit the market.

The practice needs to be ended where “my word is my bond” is subject to any form of caveat. It either is your word or it isn’t If it isn’t you can’t trade.

Goldmans or whomsoever else screws up, owns the liabilities they entered – not innocent parties posting orders of limit orders on the other side.

Thanks for the correspondence on this issue too – palpable frustration and anger that big counterparties can get trades cancelled of their own erroneous making was clear from readers yesterday.

ICE Hires Banks To Advise On Euronext Flotation
Reuters

ICE has hired three banks to advise on the listing of Euronext according to sources (one more than yesterday’s sources).

ABN Amro and existing ICE/NYSE deal advisors, Societe Generale and JP Morgan, will act as global coordinators on the flotation of the combined Paris, Lisbon, Brussels and Amsterdam exchanges.

The U.S.-based exchange operator is planning to float about 50 percent of Euronext in Paris in H2 2014 and will retain about 30 percent.

PLY: That’s a fascinating number, ICE will retain about 30% while floating about 50%. Hmmm, presumably this source once programmed algorithms for Goldmans or Everbright. I still believe Euronext is headed for a trade sale but at least now bidders have a timeframe. ICE signal that they are willing to retain a minority stake in the business which could encourage bidders who will have a clear majority stake…

NASDAQ OMX Stockholm Prepares For Separation Of Exchange And Clearing Operations
The Wall Street Journal

NASDAQ OMX has announced a new operating structure for the local entity in Stockholm, Sweden, as a part of ongoing compliance with EMIR.

The current clearing house operation will be maintained within the current company, which will be renamed to NASDAQ OMX Clearing AB. All exchange related operations will be moved to another separate company within the NASDAQ OMX Group. The exchange company will assume the name NASDAQ OMX Stockholm AB.

PLY: See Career Paths for the key positions and new NEDs.

NASDAQ OMX Riga Will Change Its Currency From Lats Into Euro January 2nd 2014

PLY: With the Lat managing to maintain its peg to the Euro despite Latvia’s woes after the spectacular property crash, it will move to Euros (despite the government having little or no popular support for the measure).

Private Markets

Review Chronicles Bloomberg Missteps On Data Use (subscription)
The Wall Street Journal

An outside review of Bloomberg LP’s data compliance and news reporting revealed that the financial-data and news provider didn’t curtail its reporters’ access to subscriber data two years ago, when concerns about that access first emerged, because of internal “misunderstandings.”

PLY: “Internal Misunderstandings” is a very damning phrase. Has Bloomberg ultimately morphed into being as broadly incompetent with a vast flaccid middle management as Reuters?

HKMEX ‘Victim’ Of False Papers
Businessweek

Barry Cheung, the chairman and largest shareholder of Hong Kong’s failed commodities exchange that is being investigated by police, said it had received false financial documents.

“We have been victims in all of this, we were provided with documents we did not know were false.”

Ong Shen Kuo, who sent Cheung a false proof of funds for $516 million, was a ‘middle man’ who didn’t know it was fake, his lawyer told a Hong Kong magistrates court.

PLY: A very sorry mess. Gradually we are seeing a process of ‘truth discovery’ via legal process.

Sri Lanka Mulls Corporate Dollar Bonds
dailymirror.lk

In a bid to open Sri Lanka’s corporate debt market to foreign investors, the local SEC is in discussions with the Central Bank to facilitate the issuing of foreign-denominated corporate debt (particularly US Dollar bonds).

This initiative will be further facilitated through bringing in trading platforms such as Bloomberg / Reuters to the Colombo SE to encourage foreign investors who prefer to invest via a custodian bank or through Bloomberg/ Reuter’s platforms.

Dividend News

ASX will pay a final dividend for the year ended 30 June 2013 of 82.3 cents per share fully franked to holders of fully paid ordinary shares.

• Ex dividend date 2 September 2013
• Record date 6 September 2013
• Payment date 25 September 2013

Special Section: FTI, NSEL, India at the Crossroads

PLY: The FMC regulator now appears energised and active in public as NSEL have failed to hold to even their own schedules. NSEL is demanding default notices and legal action against a slew of non-paying purchasers several of whom have apparently bounced cheques in this farago. Nine of the 24 largest debtors have failed to meet payment obligations already including some very large local names such as NK Proteins (2nd largest debtor) as well as Ark Imports, LOIL Overseas Foods and Lotus Refineries.

Meanwhile in a nation where deregulation has not entirely taken hold, FTI/NSEL are feeling the heat from investigations by multiple government ministries and agencies including the Consumer Affairs Ministry, Corporate Affairs Ministry, Finance Ministry, Forward Markets Commission and Sebi.

Frankly the chances of Jignesh Shah surviving in any meaningful corporate sense are dwindling as he is likely to spend years defending himself, even if he manages to pay off all the outstanding money…itself a challenge as a later story notes how his fortune has crumbled in recent weeks.

Scores on the doors at press time as markets retrace their recent actions, FTI up about 2.5%, MCX down a little over 3%.

NSEL Asked To Take Legal Action Against Defaulters
The Economic Times

Troubled bourse NSEL will have to declare buyers who failed to meet their first pay-in obligations as “defaulters” and take legal action against them. They must also auction the defaulters’ commodity stocks held as collateral according to another scathing missive from FMC to the NSEL board asking why it had failed to declare the non-paying buyers as defaulters and why default proceedings were not initiated against them for failing to meet their pay-in obligations on time.

MCA To Look Into Possible Companies Act violation
The Economic Times

The Corporate Affairs Ministry has begun looking into the NSEL meltdown to ascertain whether there have been any violations of the Companies Act.

Govt Won’t Take Over NSEL Board
The Times Of India

The government is unlikely to take over the board of NSE arguing that it does not have the technical wherewithal to deal with the crisis. “Taking over the NSEL board is not a big issue but the problem is managing it since we do not have the expertise.” a top source in the ministry of consumer affairs said.

PLY: The government of India are wise to step aside. The market created this problem and it must solve it, while the regulators are already involved. That said it strikes me as well as warehouses auditors, it might be an idea to inject some truly independent / overseas expertise to help oversee the resolution, particularly if FTI’s own choices struggle.

NSEL Auditor In The Dock Over Stock Positions
Business Standard

An association of brokers led by Motilal Oswal and Anand Rathi is planning to take the auditors of NSEL to court for providing an incorrect picture of the exchange’s stocks. A complaint will also be lodged with The Institute of Chartered Accountants of India.

NSEL Members Likely To Feel Income Tax Heat
Business Standard

The mess surrounding NSEL and its deficit payment seems to have deepened.

Apparently the Ministry of Finance has directed the income tax department to examine the stocks of some NSEL members. The government is also considering the idea of attaching NSEL properties to recover the dues in question.

NSEL Default: Spot Exchange Regulation Issue Remains
Business Standard

The issue of who actually regulates spot exchanges needs urgent clarification.

There is an official recommendation on bringing the commodity futures market regulator, the Forward Markets Commission (FMC), under the finance ministry. It is presently under the department of consumer affairs (DCA); FMC had earlier been told by DCA to take charge of sorting the mess at NSEL.

PLY: NSEL pushed the grey area envelope with gusto and we now have a mess. Internal power squabbles (hardly unknown q.v. SEC & CFTC and their parent committees in the USA) clearly played a part amongst a myriad of issues – one of them being that spot exchanges rose to prominence relatively suddenly and certainly at a low latency pace compared to the glacial speed of bureaucracies.

FMC had for some years been asking for warehouses and spot exchanges to fall entirely under their oversight while SEBI claims jurisdiction. Now there is also a proposal floating around to merge SEBI and FMC to create one body under the Finance Ministry.

N.B. There are three national spot exchanges: NSEL which held more than 90% of all spot trading before its recent closure. The others are NCDEX Spot Exchange, an offshoot of the NCDEX futures market and Reliance Spot Exchange founded by Indian billionaire Anil Ambani’s Reliance Capital.

BJP Smells Big Scam In NSEL, Seeks High-Level Probe
The Hindu Business Line

The Opposition Bharatiya Janata Party is making every effort to draw political mileage from the NSEL “scam.” The party had raised the issue in the Rajya Sabha and had alleged that one Central Minister was also involved. The party is now considering legal measures.

Senior party leader and Chairman of the Finance Standing Committee of Parliament Yashwant Sinha (a former Finance Minister) said the NSEL was a big scam. “The shocking thing is that the Government allowed it to take place,” Sinha told Business Line. He said ideally, the Finance Ministry should have taken over NSEL but “The Ministry concerned has no experience in dealing with business of this kind and proportion,” he said.

“No exchange should have been allowed to function without regulation,” he said, and added that “top people” are involved in the scam. “There should be a high-level probe into the scam. The Government should immediately bring in a regulatory mechanism. The NSEL should not be allowed to function in the manner it functions now.”

PLY: There was clearly a regulatory hole although so far as I am aware, BJP seemed mute on this until the scandal burst (well it is politics after all).

The Climb And Slide Of Ambitious Indian Entrepreneur, Jignesh Shah
Forbes

The story of the phenomenal rise of NSEL promoter Jignesh Shah is rapidly turning into a tale of an ignominious descent. Shah’s decade-and-a-half old empire built with enormous entrepreneurial grit has started to crumble.

Shah’s flagship Financial Technologies, the holding company of various businesses including NSEL and other exchanges, grew at a stunning pace for over a decade. Shah last figured in the Forbes list of richest Indians in 2010 (#87) with a fortune of $610 million.

But in the past month, the parent FTI and its affiliate stocks have plunged to a fraction (about $100 million) of their peak value of about $2 billion, effectively wiping off Shah’s fortunes.
PLY: Note how everybody is still trying hard to give Mr Shah the benefit of the doubt. He is at the lower angle of incidence of “climb and slide” the media have not yet upgraded him to “decline and fall” status although it is clearly still possible…

Technology

Quantifi Price-Spread Calculator For ICE Credit Futures
The Wall Street Journal

Quantifi, a leading provider of analytics, trading and risk management solutions for the global OTC markets, has launch of an industry price-spread calculator for credit index futures listed on ICE Futures U.S.

PLY: You can have a play with this very useful free calculator on the ICE web-site here.

Thomson Reuters Adds Cleartrade Exchange Data To Eikon
Automated Trader

Thomson Reuters has added Cleartrade Exchange futures & OTC cleared commodity derivatives data to its Eikon desktop. The agreement enables Eikon customers to gain insight into pricing / reference data for trade, risk management and hedging functions from Cleartrade Exchange, the Singapore-based electronic global marketplace for commodity futures and OTC cleared commodity derivatives.

MarkitSERV Throws Trades Over To Clearinghouses
Asset Servicing Times

More than 600,000 trades have been submitted to clearing houses by MarkitSERV in the period between 11 March, when CFTC made clearing of certain OTC derivatives mandatory, and the end of July.

H1 2013, the volume of trades submitted for clearing using MarkitSERV was up 48 percent from H1 2012, and included more than 120,000 client trades – transactions in which at least one party is not a member of a clearinghouse – on behalf of approximately 280 firms.

More than 300 buy-side firms have subscribed to MarkitSERV’s clearing connectivity so far this year.

Products

Eurex To Offer Ruble Derivatives With Moscow Exchange
Bloomberg

Eurex will begin offering Russian currency derivatives with the Moscow Exchange, a day after announcing plans to enter the foreign-exchange futures/options market.

Career Paths

Under the new structure NASDAQ OMX Stockholm AB:

Johan Rudén has been appointed President of NASDAQ OMX Clearing AB
Magnus Billing has been appointed President of NASDAQ OMX Stockholm AB
Fredrik Ekström has been appointed Chief Risk Officer of NASDAQ OMX Clearing AB

The appointed Board Directors of NASDAQ OMX Stockholm AB, to be renamed to NASDAQ OMX Clearing AB on September 3, are:

Lars Nyberg, former Board Member of the Swedish Financial Supervisory Authority and former Deputy Governor of the Swedish Central Bank.
Osmo Jauri, co-partner and owner of financial risk management systems company Model IT Oy.

Betfair has promoted director of regulatory affairs Fiona Russell to the role of chief legal officer and company secretary, replacing long-term incumbent Martin Cruddace.

Russell joined Betfair in May 2006 as international legal counsel, having spent the previous three years as a solicitor for BSkyB, before being promoted to director of regulatory affairs in January of this year.

Changes in investors/shareholders

BNP Paribas Sells MCX Shares Worth Rs. 17 Crore (USD 2.6 mln)
ndtv.com

Financial services firm BNP Paribas Arbitrage on Wednesday offloaded 600 000 shares of Multi Commodity Exchange (MCX) at Rs. 282.7 (USD 4.34) apiece for a total of Rs. 16.96 crore (USD 2.6 mln).

Earlier this week we previously reported in EI that BNP bought shares in two declared transactions:

August 19: 566 000 MCX shares for an estimated Rs. 14.5 crore (USD 2.29 mln);
August 16: 640 000 MCX shares for more than Rs. 15 crore (USD 2.42 mln).

Financial Calendar

Tomorrow:

Charles Schwab Corp. $0.06 Q2 dividend payment
Record date BGC Partners $0.12 Q2 dividend

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

Share Notes

ICE Director Charles Crisp sold 1,000 shares Tuesday, August 20th at an average price of $181.37 (bargain $181,370.00). He now owns 12,259 shares.

Analyst Notes

NASDAQ OMX Rating Upgraded by Raymond James from “Outperform” to “Strong-Buy” – $38 Price Target

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

TubeStart: New Crowdfunding Platform Caters To YouTubers
USA Today

While Kickstarter is a fantastic platform, one downside is that many smaller, niche projects can get lost in the shuffle.

A new crowdfunding site just launched with a very specific appeal. Aimed at YouTube users and content creators, TubeStart hopes to help web series and video channels raise the money they need.

TubeStart creators can set fundraising goals from $500-500,000 and offer rewards similar to the ones we’ve seen on Kickstarter. (Many rewards are more video-focused, of course, and include access to exclusive footage and advance previews.)

The platform also offers something it calls “subscription-based crowdfunding,” in which fans can donate anywhere from $5-150 every month.

Other stories

Carbon Permits Rise On China’s First Market To Exceed EU Price
Businessweek

Carbon permits have risen on the Shenzhen Emissions Exchange, the first of seven trial markets in China, to a price exceeding those in Europe.

Shenzhen carbon allowances for 2013 increased to 43 yuan ($7) a metric ton yesterday, up from 28 to 32 yuan a ton on June 18, the first day of trading, said Charlie Cao, a Beijing-based analyst for New Energy Finance.

End Note: I know, it’s incredible. A whole EI bulletin and not a single mention of the LME. Remarkable. Some day we might even manage a day without any Indian coverage… Some day…

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