August 22 2014

elb2LSE impresses with strong results again, announces rights issue terms, “Cheetah” spotter in chief Bart Chilton demonstrates a remarkable ability to change his spots, defining the regulatory chameleon. Japan – Taiwan co-operation afoot? China liberalising in lots of ways, even if the OTC market may be only for the more intrepid investor while carbon is open for business in Shenzen with new ways to settle in Dalian. Shrinking SEFs: as initial optimism proves to be as misplaced as we always said it would be while ASX is being demolished by LCH.Clearnet in battle for Ozzie dollar swap clearing. BM&F Bovespa avails itself of tax amnesty, no, really, that’s what it says…and there is lots of jobs news.

Happy scrolling…and of course if you have been away, don’t forget to check in on our ongoing expose of the NLX MTF which may stand for “Multilateral Trading Faux-cility.” How long before we see some regulatory action against mounting evidence that they are just a payment for order flow laundry without any economically beneficial coherence readily apparent?

Can you really afford to miss these insights? Each subscription helps keep this daily newsletter laden with pith, and, above all, free. Keep up with the NLX story and more with a Premium sub at just $120 per annum for each user (You can subscribe here). Recent stories on NLX alone include:

NEW: NLX: Plus Ca Change?

Must Read: NLX: The Butterfly (In)Effect,
NLX: Big Data: Easy to Find?,
NLX: Missed Opportunity,
NLX: Measuring Up the Coffin?

Public Markets

LSE Interim Results For The Three Months Ended 30 June 2014
LSE

Highlights

Total Income £323.9 (USD 537.35) mln, up 16%
Operating Revenue £148.2 (USD 245.87) mln, up 25%
Operating Expenses £175.7 (USD 291.49) mln, up 8%
Net Profit £129.8 (USD 215.34) mln, up 26%
EPS 31.9 pence (USD 0.53), up 18%

PLY: Great numbers. Expect to see Russell results later today. Meanwhile LSE Rights issue is expected to raise GBP 938m net (adding 74.3 million additional outstanding shares) and is priced at 1295p (y’day closing price was 2005) and LSE maintains their expectation that Russell acquisition will be “earnings accretive in the first full year on an aggregate basis [investment management plus index business], with Russell’s index business accretive from year two on a standalone basis.” Peter Lenardos of RBC is once again the fastest to market with his insights today, albeit that a lot of analysts seem to have gone on holiday ahead of the UK long weekend, making for a brief LSE investor call this am (only 2 questions).

HFT ‘Cheetahs’ Get Chilton As An Adviser (subscription)
Gregory Meyer – Financial Times

One of the world’s most outspoken critics of high-speed traders has signed on as an adviser to an industry group for high-speed traders less than six months after stepping down as a US regulator.

Bart Chilton, who coined the term “cheetahs” to describe HFT firms will provide policy advice to the Modern Markets Initiative (MMI).

PLY: New phrase of the day: “regulatory chameleon” – a figure who vociferously says one thing in office then throws himself headlong into the arms of a large opposing chequebook within months of leaving office. More on this below with welcome news that Bill Harts will run the group. MMI is backed by four major HFT groups: Tower Research Capital LLC, Hudson River Trading LLC and Global Trading Systems LLC in New York; and Quantlab Financial LLC in Houston which we discussed in EI on January 6th when “A” list Washington lobbyists Kevin Madden and Erik Smith created the entity which runs parallel with the FIA Principal Traders Group. Meanwhile, Bart, it may take some time to live down the “who is the biggest cheetah of them all?” moniker… I hope it was worth it.

BM&F Bovespa To Pay Down Debt Under Tax Amnesty Plan
Reuters

BM&F Bovespa has agreed to join a tax amnesty program to partially pay down a debt with the Revenue Service related to the company’s 2007 IPO share offering. As part of the tax amnesty program, the company will book a 123 mln real ($54 mln) reduction in tax liabilities related to the IPO that preceded the merger of the then BM&F and Bovespa.

PLY: Hmmm while it is presumably more cost effective, does having your national exchange pay a tax bill via an amnesty plan really pass the smell test of endeavouring to deliver a market of flawless integrity? I worry this could undermine the brilliantly planned and well-executed new CCP we have been discussing in EI Daily this week.

JPX To Decide On Extending Trading Hours This Year
Faith Hung – Reuters

Japan Exchange Group Inc (JPX) CEO Atsushi Saito said on Friday that he favours longer trading hours for the exchange and a decision on the long-debated issue will be made this year.

SEF Consolidation Likely As Volumes Slowly Increase (subscription)
Ivy Schmerken – WallStreet & Technology

SEF trading has been mandatory for many over-the-counter derivatives, mainly credit indexes and interest rates, since mid–February. Yet the transition from opaque voice trading to SEFs (swap execution facilities) has been evolving slowly.

PLY: The gold rush to SEFs isn’t the Y2K fiasco but it’s going a bit that way – so far (minutes, baby, minutes, those rate rises are a-coming, hang in there!). The instant wave of liquidity was a pipedream promulgated by media and other linear thinkers…whose hype last year had some 80+ SEFs likely to occur (hence why EI began the first listing of SEFs to keep track with the reality and not the bar room banter). Consolidation or shrinking of the SEF pool looms as some folks fail to gain traction and run out of funding…

Private Markets

China Juices Liquidity & Risk, At OTC Exchange
Pete Sweeney – Reuters

Chinese brokerages will start making markets next week on China’s New Third Board, its leading OTC exchange but one long derided as a dead-end market populated by small little-known, opaquely managed firms. The move has revitalized interest and trading volumes have exploded.

EI reported on August 19th that China’s “third board” OTC market in Beijing will implement a market-making system for trading shares.

PLY: Given how so many US listed Chinese stocks proved to be, well, let us say, rather challenging to evaluate on conventional economic grounds, the idea of the Chinese OTC market clearly has more than a hint of “red or black” to it when evaluating risk.

China To Let Foreign Investors Trade In Shenzhen Carbon Market
Bloomberg

China, the world’s biggest emitter of greenhouse gases, said it will allow foreigners to trade carbon permits in Shenzhen, making it the nation’s first emissions exchange to welcome outside investors.

See also our premium post: China Liberalises.

Stock Exchange Launches News Service
John Churu – BizTechAfrica

BSE CEO, Hiran Mendis said X-News has been implemented as part of the strategy of making the BSE a database of exchange-related information for the benefit of the market. “This will reduce the asymmetry of information.” Mendis said.

Taiwan To Consider Plan For Taiwanese, Japanese Firms To List On Either Stock Exchange
Faith Hung – Reuters

Taiwan’s top finance regulator said on Friday Taiwan will study the possibility of facilitating the listing of local and Japanese firms on each other’s stock exchange. “Taiwan’s and Japan’s industries have long had good connections,” chairman William Tseng of the Financial Supervisory Commission (FSC) told reporters.

PLY: … At a conference attended by JPX CEO Atsushi Saito incidentally…

NSE Seeks Enhanced Investor Protection
StarAfrica

In a bid to maintain the integrity of the capital market and further protect investors in Nigeria, the Nigerian Stock Exchange (NSE) has formally announced its intention to sever all connections with any dealing member firm that is inactive for six consecutive months.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat while FTIL continues its relief rally on the new MCX contract (as opposed to losing the deal altogether), up 2.5%.

NSEL Scam: ED Attaches Spinning Mill Plant In Andhra Pradesh
Economic Times

The Enforcement Directorate (ED) attached a spinning mill plant in Andhra Pradesh in connection with its money laundering probe in NSEL. The plant is located in Guntur district of the state and is registered under the name of Ms Spincot Textiles, an official order by the agency said.

PLY: Attachment is one step, where are the auctions? Time for sales in India to repay the creditors and leave us with a clear picture of the required restitution from FTIL.

Technology

Nasdaq OMX Introduces New IP Addresses For New York Area (subscription)
Giulia Lasagni – Waters Technology

Nasdaq OMX has introduced new IP addresses for the New York Metro Area datacenter for its PHLX depth of darket, PHLX orders, and top of PHLX Options (TOPO) data feeds.

Perseus Global Trading Access & Risk Compliance For Eris Exchange Goes Live
Mondo Visione

Perseus Telecom, announced trading access and time verification is now available for Eris Exchange Swap Futures accessible at Equinix data centres in Chicago, London and Tokyo. By using the Perseus M2M Network Trading, participants will enjoy extremely fast, reliable and secure connectivity to the Eris SwapBook electronic trading platform.

NovaSparks Launches OPRA Feed Handler (subscription)
Faye Kilburn – WatersTechnology

French FPGA feed handler and data appliance provider NovaSparks has released a new FPGA-based feed handler for OPRA consolidated cash equity options feed, that will enable trading firms and investment banks to more efficiently process the high volumes of options data disseminated by the feed.

Liquid Holdings Group Launches Liquid FIRM(SM) For Real-Time, Firm-Wide Risk Monitoring
Money.CNN

Liquid Holdings Group, a provider of a single cloud-based platform that integrates real-time order, execution, and risk management with reporting and shadow NAV for the financial services community, unveiled Liquid FIRMSM (Financial Intermediary Risk Management), a real-time solution that allows firms to actively monitor pre- and post-trade risks at all times across multiple accounts and strategies.

Alpha Omega Advises Trading Desks Use FIX to Boost Post-Trade Efficiency
John D’Antona Jr. – Traders Magazine

Cost cutting has become a fact of life everyday on Wall Street and especially in the equities markets where commissions have been stagnant for years. While staffing, broker lists and electronic pre-trade services have all been trimmed, now is the time to look at the post-trade side of things and use the FIX protocol to do so. That’s the opinion of Alpha Omega Financial Systems, who reckon U.S. Trading desks can shave upwards of 30% or more off U.S. their domestic post-trade equity trading costs in a 4-page white paper on the subject, “Looking Back to Shape the Future.”

Q&A With Claire Cockerton, CEO & Founding Director At Innovate Finance
Tech City

Launched earlier this summer by George Osborne, Innovate Finance aims to accelerate Britain’s leading position in the global financial services sector.

PLY: Interesting article, although I am still not convinced why such a body needs to exist at such a level of sophistication (nor what it adds beside existing bodies for say P2P lending and crowdfunding etc). The danger is it looks like another agitprop plaything of the dismally centre left socialist corporate mindset of the stunningly weak and highly limited UK Chancellor who apparently thinks he understands politics but is borderline business/finance illiterate given his ghastly incapacity to manage Britain’s finances.

See also EI on August 7th and July 8th.

Products

Slow Start To ASX Australian Dollar OTC Derivative Clearing (subscription)
Justin Lee – Risk

ASX CEO Elmer Funke Kupper says the exchange is hopeful of gaining more volumes on its OTC derivative clearing service for Australian dollar IRS.

PLY: This article notes the clear failure of EFK and ASX to get into the local currency swaps clearing market. AUD 124 billion (USD 115 billion) for ASX sounds promising until you realise that LCH.Clearnet has garnered a handy AUD 2.5 trillion (USD 2.33 trillion)! Last year’s decision to relocate LCH veteran Rory Cunningham to Sydney has paid enormous dividends. Talk that the market could be worth $15-16 trillion and hence ASX has all to play for, misses the clear point that the business will go where there is traction and right now that is not the visionless ASX which has had to rely on rampant protectionist fiat to maintain equity market share (while still losing ground) and is failing similarly to deal with a strong competitor in clearing.

I have said it before and will never tire of noting: cash people rarely, if ever, manage the transition to the three dimensions of derivatives. Mr Kupper isn’t as bad as his concrete pouring predecessor as he has a background in gambling which gives him some concept of optionality and risk but he simply isn’t demonstrating the potential that ASX has sadly squandered over the past 15 years, going from innovative market leader to market share losing laggard.

ICAP Energy Launches Global Coking Coal – First Contract Completed & Cleared On CME
Mondo Visione

ICAP Energy, the energy business of ICAP plc, has successfully launched a global Coking Coal desk.

ISDA Publishes ISDA 2014 Credit Derivatives Definitions Protocol
Mondo Visione

ISDA announced the launch of the ISDA 2014 Credit Derivatives Definitions Protocol.

CFTC Quietly Amassing Data On Natural Gas Swaps (subscription)
Alexander Osipovich – Risk

Dozens of US energy companies have been quietly contacted by CFTC over the past 12 months and ordered to hand over information about their swap trading activities, primarily in natural gas, prompting surprise and confusion as they try to respond to the unexpected queries.

ISDA Letter To BCBS/IOSCO On Timing Issues For Margin Rules For Uncleared Derivatives
Mondo Visione

ISDA member firms participating in the industry-led WGMR implementation initiative are concerned about the market’s ability to meet an implementation date of December 2015…the practical start date of the WGMR requirements would be April 2017.

Dalian Exchange Adopts New Physical Delivery Model (subscription)
Luke Jeffs – FOW

China’s top commodity exchange has revised its delivery mechanism to tackle the problem of uncertainty around the location of delivery, marking the latest move by a commodities market to address frustration over warehousing issues. Dalian Commodity Exchange has introduced a new “three-step delivery” method for its August contracts in four products — blockboard, fibreboard, coke and LLDPE, a polymer used in plastic bags.

Indexes

ETF Providers Grapple With Index Choices
Investor’s Business Daily

It’s something of a cliche these days to talk about the slicing and dicing of the ETF market, but who wields the knife?

CoinDesk Launches Sentiment Index For Bitcoin
Coinsetter

Bitcoin information vendor CoinDesk has announced the launch of a Bitcoin Sentiment Index for Bitcoin using survey data from Qriously, a company that tracks and delivers surveys to people in place of mobile ads

Career Paths

MV reported that Andrew Simpson, former COO at Rate Validation Services (RVS) and Head of Business Development at EuroCCP has been appointed Head of Post Trade at Euronext with effect from 18th August 2014. Hugo Rocha, former Senior Sales & Relationship Manager at BNP Paribas Securities Services will be appointed as a Member of the Managing Board at Interbolsa, the Euronext subsidiary and Central Securities Depository (CSD), with effect from 1st September 2014.

MV reported that LCH.Clearnet appointed Marcus Robinson, former Director of SwapClear Business Change, London Office as Head of SwapClear Australia.

Hindu Business Line reported that MCX is considering elevating the interim CEO Praveen Kumar Singhal to Joint MD for a period of three years. FMC elevated Parveen Kumar Singhal, EVP of MCX, as interim CEO on May 23 and gave two months’ time for the board to appoint a new MD.

Moneycontrol reported that National Bulk Handling Corporation (NBHC) has appointed Dr Vijay Kelkar as Chairman and an Independent Director and Dr Ajay N Shah as an Independent Director.

Reuters reported that Modern Markets Initiative, a high-frequency trading advocacy group, announced Bill Harts, an electronic trading veteran, as its CEO, and retained the same law firm that hired former derivatives regulator Bart Chilton.

PLY: Welcome back to the industry for Bill Harts who I have known since his rather pioneering interest in electronic trading at the end of the last century when he was in the Salomons leviathan. Bart…oh Bart, what were you thinking? Will the cowboy boots be going next? I mean we all have to make a living but surely this comes over just a little too ‘gun for hire’ even for a hardened Washington pro like your good self?

Nairobi Securities Exchange (NSE) announced Mr. Peter K. Mwangi, CEO is to step down from his position effective November 23, 2014. Mr. Mwangi was appointed on November 24, 2008 on a three year contract which was extended in November 2011 for another term of three years which is due to end on November 23, 2014.

Waters reports that Christopher Perry, former global MD of the risk segment in Thomson Reuters’ financial and risk division, is to join financial technology and investor communications service provider Broadridge Financial Solutions next month as president of global sales, marketing and client solutions.

Following the call for interest for the renewal of the Consultative Working Group for the Commodity Derivatives Task Force, ESMA announced the composition of the new group.

Chairman: Martin Wheatley, CEO, Financial Conduct Authority (FCA UK)

Rapporteur : Catherine Sutcliffe, Carsten Ostermann

Members of the CDTF consultative group:

Anne-Laure Paumier, COOP de France (Association of Agricultural French Cooperatives)
Bernhard Walter, Senior Manager Market Design & Regulatory Affairs, Business Unit Trading, EnBW, Energie Baden-Württemberg AG
Carrie Southard, Director, Head of EMEA Commodity Business Management, Citigroup
Daniel Smith, Head of Finance and Corporate Development, Trayport
Frederic Baule, Independent Consultant
Fredrik Voss, VP, Deputy Head, Nasdaq OMX Commodities
Karl-Peter Horstmann, Head of Markets Regulation, RWE
Katarzyna Szwarc, Director, Bureau of Compliance, Polish Power Exchange
Laurent Texier, Global Head of Compliance, Louis Dreyfus Commodities
Liam McCarthy, Executive Director: Legal and Compliance, Morgan Stanley
Maria Dolores Garcia Rodriguez, Deputy Director of International Regulation, Endesa
Myriam Vander Stichele, Senior Researcher, SOMO
Odile Roy de Puyfontaine, Head of Compliance for EMEA and Asia, Vitol Group
Olav Houben, MD Commodities, All Pension Group (APG)
Olivier Raevel, Head of Commodities, Euronext
Peter Caddy, Executive Director , Argus Media Ltd
Pietro Laghezza, Head of Energy Derivatives Trading, Unicredit
Robert Shimmel, Fund Manager, Director, Commodities, Blackrock
Toni Ricci, European Compliance Officer, BNP Paribas Commodities
Vince McCallion, Head of Market Conduct, Statoil
Wolfgang von Rintelen, Director Legal & Compliance, EEX

PLY: Amongst other stories, EI reported on the working group report on June 11th. An interesting mix although interesting that ICE has no direct representation and CME is only by proxy through recent subsidiary acquisition Trayport.

Financial Calendar

Today

Record date HKEx $1.83 interim dividend
Record date TMX $0.40 quarterly dividend
Record date BGC Partners $0.12 quarterly dividend
Record date Fidessa 13.1p interim dividend

Next Week

Record date CBOE $0.21 quarterly dividend
Record date Interactive Brokers $0.10 quarterly dividend

Share Notes

ITG CEO Robert C. Gasser sold 15,000 shares Wednesday, August 20th at an average price of $17.48 (bargain $262,200.00). He now owns 286,560 shares.

Crowdfunding

P2P Lending Projected To Reach £1bn In 2014
Yolanda – Total Payments

On July 27th data released by the P2P Finance Association (P2PFA) indicated that P2P lenders are projected to lend over £1 bln in 2014. New lending in the first six months of this year totaled £272.7 mln with a total cumulative lending standing at £1,482 mln, demonstrating that p2p lending is gaining a foothold in the financial industry.

PLY: Hooray, anything which keeps banks honest is a great and bounteous thing.

Other stories

Bank Of America To Pay $16.65 Bln In Historic Justice Department Settlement For Financial Fraud Leading Up To And During The Financial Crisis
Mondo Visione

Attorney General Eric Holder and Associate Attorney General Tony West announced that the Department of Justice has reached a $16.65 bln settlement with Bank of America Corporation – the largest civil settlement with a single entity in American history ­— to resolve federal and state claims…

PLY: As I tweeted last night via my @FrontierFinance account: “One could say BoA paying $16.65 billion marks a significant compounding from the $50 Get Out of Jail Free card introduced in 1930’s Monopoly.”

Dubai Tries to Attract Investors Through Simpler Regulation
Avi Mizrahi – Forex Magnates

Dubai is set to strengthen the supervisory and enforcement powers of its financial watchdog to get closer in line with International Standards.

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