August 25 2014

elb2PLY: After 107 days, Jignesh Shah has been released on bail, although the judge doesn’t believe he was unaware of the NSEL fraud. CME suffers four hour Globex outage. Meanwhile lots of news on Bitcoin as well as crowdfunding and Russell display good profits to cheer LSE.

Sino-Hong Kong through train gaining traction as it passes connectivity test, worries about SGX costs as another day dawns with a greater regulatory burden for us all. (IBKR must register Australian subsidiary to fall within ASIC credit rules, is just one of them…). Multiple additions of pith, so happy scrolling…

It’s a bank holiday today in the UK, which is why it has been raining across much of Europe during the weekend. However, lest you missed it last week, we were back on the case of the odd creature which is NLX (Is it a market? Or merely a marketing machine? What secrets lie at the heart of the beast which is neither regulated bourse nor, it seems, the market it has been made to appear?).

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:

Latest: NLX: Plus Ca Change?
NLX: The Butterfly (In)Effect,
NLX: Big Data: Easy to Find?,
NLX: Missed Opportunity,
NLX: Measuring Up the Coffin?

Public Markets

PLY: Amidst the 300 page LSE rights issue prospectus the Russell H1 results emerged…and very encouraging reading they made too! Index revenue increased 15% with EBITDA up 30% y/y while in asset management, revenue increased 12% y/y with EBITDA increasing 52%. Note incidentally that so far LSE has not committed to any plan of action with regard to the asset management business…

SEBI Relaxes Norms For Financial Tech To Divest Stake In MCX
NDTV

EI reported on August 18th that Sebi will take a relook at a fresh plea by MCX.

PLY: The original prescription that FTIL Must retain 20% of MCX until March 2015 post IPO has been relaxed given other events…

EMIR Coming Into Focus with Quieter Second Deadline (Subscription)
Dan DeFrancesco – Waters Technology

It’s been just over six months since the EMIR was enacted, and while the rule, which requires both parties involved in a derivative trade in Europe to report it to a trade repository (TR) on the same day, is far from a well-oiled machine, understanding of the complex regulation has gotten steadily better by buy-side and sell-side firms alike.

The Trade Repositories are listed on our TR page.

SGX – How Much Do The Improved Regulatory & Risk Management Capabilities Cost?
Malay Mail Online

Singapore Exchange (SGX) warns costs are going to rise substantially in the year ahead, expecting operating expenses of between S$330 mln (RM 835 mln) and S$340 mln, up from S$315 mln in the year just ended.

HKEx Completes Connectivity Test For Shanghai-Hong Kong Stock Connect
HKEx

HKEx announced Sunday that the two-day connectivity test (CT) for Shanghai-Hong Kong Stock Connect which started yesterday has been completed smoothly. The next step is market rehearsals (MRs) scheduled for 30-31 August and 13 September.

EI reported on August 20th that the Shanghai – Hong Kong ‘through train’ link will speed up reforms of China’s stock markets. On August 11th the first trial of the Shanghai-Hong Kong Stock Connect took place in the mainland.

SAT Asks Financial Technologies To Approach SEBI To Seek More Time
Economic Times

The Securities Appellate Tribunal (SAT) has asked Jignesh Shah-promoted FTIL to approach SEBI for seeking extension of time for divesting existing holdings in MCX-SX and four other entities.

ASIC Urges Interactive Brokers To Launch New Company For Australian Clients
Andrew Saks-McLeod – LeapRate

North American retail FX giant Interactive Brokers LLC has encountered a rough business challenge in the Land Down Under. LeapRate has been informed that ASIC has demanded that the broker opens a new business entity in the country if it wants to continue its provision of margin loans to Australian residents.

PLY: An interesting demand in Australia – pertaining to credit provision which if only ASIC could see far enough ahead, it would realise is likely to be somewhat disintermediated from its grasp thanks to Bitcoin et al anyway…

SEBI May Review Norms Related To Use Of Investor Protection Funds (IPF)
Ashish Rukhaiyar – Livemint

SEBI is likely to review guidelines related to the utilization of IPF, which is currently managed separately by individual stock exchanges.

The idea of moving away from individual IPFs and creating a centralized IPF that would be under the control of the capital market regulator was discussed at a recent meeting between senior officials of SEBI and three stock exchanges.

PLY: Another ill-concealed power grab by the Indian regulators – whose ability to control the system when something goes wrong has already been proven to be lacking on a very broad canvas…

Private Markets

SECP Expressed Contentment Over The State Of Preparedness For Divestment Of Shares Of LSE (Lahore Stock Exchange)
Mondo Visione

PLY: Lahore SE is on track for demutualisation and IPO to local and foreign investors.

Commexes’ Turnover Dips Over 58% Till August 15 of FY15
Economic Times

The turnover of the Commodity exchanges dropped 58.37% to $370 bln till August 15 of this fiscal on continuous fall in Trading volumes in most of the commodities, according to the FMC.

China Gold Exchange Gains Traction As Yuan Reforms Stir Interest
A. Ananthalakshmi – Reuters

EI reported on August 19th that SGE plans to start bullion trading in the city’s FTZ.

PLY: The planned global gold exchange in China has briskly exceeded membership expectations…will the fix in London soon be less relevant no matter who administers it going forward?

Why There Should Be A Bitcoin Central Bank
Forbes

PLY: I still don’t agree with the idea of adding old fashioned intermediaries back into the Blockchain hence am not a fan of a central bank in Bitcoin (although it might play a role in other cryptocurrencies) but Mr Mu argues eloquently here for a reserve bank of BTC.

BitPay On The State Of Bitcoin Merchant Adoption In Europe
Pete Rizzo – CoinDesk

Though digital Currency has undeniably accumulated a strong following among consumers in Europe, the region has arguably trailed the US market in one notable area – high-profile merchant adoption.

Despite a number of mid-size merchants such as AirBaltic, 220Volt and most recently Shipito joining the growing ranks of bitcoin merchants worldwide, a merchant with the revenue and notoriety of Dish, Expedia or Overstock has yet to become part of the region’s bitcoin ecosystem.

PLY: European merchant conservatism is one issue, as is the reluctance to add more payments providers when most vendors already have multiple (largely functionally incompetent and expensive) providers already for the legacy systems of trade. Moreover solutions on the ground in Europe so far that I have seen are really not much use in many respects (for private businesses I have interests in, we have just created our own payment interface as the solutions vendors didn’t offer any benefit).

China’s “Big Three” Bitcoin Exchanges Agree That BitLicense Proposal “Could Be Very Damaging To The Industry”
Diana Ngo – Cointelegraph

Regarding the issue of the global influence that the current BitLicense proposal would have on Bitcoin-related businesses throughout the world, Lawsky said to be welcoming”as many points of views as possible” in order “to make the best decisions possible.

China’s “Big Three” Bitcoin exchanges BTC China, Huobi and OKCoin, transmitted their joint-comments regarding the BitLicense proposal, a series of rules which were designed to regulate virtual Currency-related businesses, submitted in late-July by the New York State Department of Financial Services.

EI reported on July 18th that Benjamin M. Lawsky, Superintendent of Financial Services, announced that the New York State Department of Financial Services (DFS) has issued for public comment a proposed “BitLicense”.

PLY: Following our reporting Thursday of the Chinese letter, it is increasingly clear the NY Bitlicence proposal is simply too restrictive. A total rewrite is required and a lot less regulation needs to be incorporated. This will prove challenging for the inherently meddlesome gene pool of the New York Democratic AG’s office.

San Francisco Open Exchange Aims To Be The E-Trade Of Bitcoin
Sarah Buhr – TechCrunch

Y Combinator-backed startup San Francisco Open Exchange (SFOX) is an online trading platform that helps people find the best bitcoin prices at various exchanges. Co-founder Akbar Thobhani left his job at Airbnb to create this platform.

PLY: Backed with T Combinator chutzpah and PR flair, SFOX is off to an in interesting start, albeit in private beta, so I can’t test the actual functionality yet.

BitBeat: Bitcoin Accepted Here; Dollars, Not So Much (subscription)
Paul Vigna & Michael J. Casey – Wall Street Journal

We were intrigued by a story online, reporting that Denver-based precious metals dealer Amagi Metals said that by the end of 2016, it will no longer accept dollar-denominated business, and will do all of its business in cryptocurrencies (or gold, of course). Surely, that couldn’t be. Why would any retail business decide not to accept the world’s most widely distributed and widely used currency? We had to talk to somebody at the company, to see if this story was right.

PLY: Amagi Metals CEO Stephen Macaskill fears the US will have a ZImbabwe meltdown, is worried about the risk of being left with no gold and lots of worthless dollars: “I’m a big advocate of sound money,” he said. Can’t blame him.

Electronic Transactions Association (ETA) CEO Expecting More Partnerships With Bitcoin Startups
Diana Ngo – Cointelegraph

ETA CEO, Jason Oxman, indicated that members of his organization might start recognizing Bitcoin’s disruptive potential, suggesting that this might lead to more partnerships between traditional electronic payment providers and Bitcoin startups.

PLY: Bitpay joined this industry body August 6th and is likely to be the first of many – as the legacy providers try to work out which one to buy to help propel them hurtling towards, well at least the present, if not the future!

New York Bitcoin Center Announces Startup Incubator
Coinsetter

The New York Bitcoin Center, has announced a new Bitcoin startup incubator in the city located 100 feet from the NYSE.

PLY: I had the pleasure of visiting the Polish equivalent, the Warsaw Bitcoin embassy a few weeks back.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Jignesh is out of jail but he hasn’t got away with it yet… MCX is off 1% and FTIL has rallied 3%.

Bombay High Court Grants Bail To FTIL Promoter Jignesh Shah
Mahesh Nayak – Business Today

The Bombay High Court has granted bail to Jignesh Shah, promoter of FTIL for Rs 5 Lakh ($8276) surety, over three months after he was arrested in the case.

PLY: Mr Shah must report to the police twice a week for two months at least and was freed as the court believes he is not a flight risk. At the same time the High Court rejected the idea he knew nothing about the NSEL scam. The judge also criticised some creditors…

Case Against CB Bhave Closed; CBI Recommends Departmental Action
Economic Times

The CBI has decided to close a case against former SEBI chairman C B Bhave and another ex-member in connection with grant of sanction to MCX-SX to function as a full-fledged private stock exchange but recommended “departmental action” against him.

EI reported on May 13th that CBI quizzed former SEBI Chairman C B Bhave in connection with granting sanction to Jignesh Shah.

PLY: Interesting that some sanction may be handed down…I didn’t actually think on the evidence I had seen that the regulators did anything wrong in licensing MCX-SX, actually I thought their refusal to licence it previously was odd as they didn’t seem to have a just cause.

NSEL Investors Forum To Appeal Against High Court Order
Ram Sahgal – Economic Times

Stung by comments of a Bombay High Court judge that investors were aware of fictitious trades on the now-defunct NSEL, a forum comprising around 2,500 investors is proposing to appeal against the order in the Supreme Court.

PLY: Alas the pure innocence of the sell side in this affair is hard to comprehend while a lot of folk seem to have been blinded by greed – bubbles were forever thus. There was clearly a fraud at the epicentre but many investors and particularly brokers overplayed their hand early in this farago.

Technology

CME Opens Electronic Futures Trading After 4-Hour Delay
Adam Haigh & Phoebe Sedgman – Bloomberg

CME started electronic futures Trading after a technical issue halted markets for as long as four hours, affecting contracts from U.S. stock indexes to Treasuries, oil and gold.

CME suspended all of its Globex electronic- trading markets except for Malaysian equity-index derivatives, according to its website. Trading which was scheduled to start at 5 p.m. Chicago time for some products, began at 9 p.m.

Market Watchdog Issues Cyber Attack Warning (subscription)
Sam Fleming – Financial Times

Greg Medcraft, chairman of the board of the International Organisation of Securities Commissions (Iosco), predicted that the next major financial shock – or “black swan event” – will come from cyber space, following a succession of attacks on financial players.

PLY: It’s been a long time but finally such attacks appear to be on the radar of the regulators.

Tech Race Fuels Bitcoin Mining Bubble (subscription)
Izabella Kaminska & Stephen Foley – Financial Times

EI reported on August 13th that Somewhere in very rural northeast China lies a dusty and dirty factory where the deafening roar of machinery leaks from an armada of Bitcoin mining rigs.

PLY: One of those articles which reminds us just how far the Brussels Bugle has fallen behind in terms of being a newspaper for capitalism and investors. Some useful snippets about mining power but mostly a rather dull makeover of the same old same old cliches the media love about Bitcoin…which they also employed about, say the internet (controversial, dangerous, prone to criminality etc etc) and indeed pretty much every other innovation over time.

Products

ASEAN Exchanges On Track To Create An ASEAN Asset Class
Mondo Vision

The ASEAN Exchanges CEOs convened at the 21st ASEAN Exchanges CEOs meeting to discuss the next collaborative action steps to Market and promote ASEAN as one asset class…

Thailand Allows Foreign Currency Structured Product Issuance (Subscription)
Justin Lee – Risk

Thailand’s SEC is poised to allow foreign currency structured notes to be offered onshore in Thailand.

EU Sets Out Roadmap To Boost Securitised Debt Market
Huw Jones – Reuters

The European Union will decide next year if legal changes are needed to boost the market for securitised debt, a sector seen as key to injecting funds into the economy and encouraging growth, an EU document showed on Friday.

The document is another indicator that concern over the level of funding to the EU economy, particularly in the flagging euro zone, has reached the highest political level.

PLY: A useful move as the EU and particularly the Eurozone needs all the help it can get, as the EU has driven its growth agenda all the way to the economic abyss.

Financial Calendar

This Week

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

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

Share Notes

MarketAxess Holdings Insider Nicholas Themelis sold 11,000 shares Thursday, August 21st at an average price of $57.58 (bargain $633,380.00). He now owns 56,791 shares.

TMX CEO Plans To Exercise Options & Sell Common
Mondo Visione

TMX announced that Tom Kloet, CEO intends to exercise stock options and sell common shares for tax-planning purposes, subject to market conditions. As reported in TMX’s management information circular dated April 11, 2014, Mr. Kloet has a share ownership requirement of three times his base salary, which he will continue to exceed following any sales.

Analyst Notes

LSE “Buy” Rating Reiterated By Espirito Santo Investment Bank – GBX 2,364 ($39.52) Target Price.
LSE “Under Review” Rating Reaffirmed By Numis Securities Ltd.
RBC Capital Reissued Their “Outperform” Rating On LSE – GBX 2,200 ($36.78) Price Objective.

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

MP Craig Foss Talks Crowdfunding On Snowball Effect
Crowdfund Insider

New Zealand MP, the Honorable Craig Foss,has shared his opinion on the benefits of equity crowdfunding and peer to peer lending on Kiwi crowdfunding platform Snowball Effect. The Financial Markets Conduct Act (FMC Act) legalized both equity crowdfunding and P2P lending in New Zealand. Mr. Foss states that New Zealand is leading the “development of crowdfunding regulation in the Asia-Pacific region.”

PLY: So many regulators have fumbled the ball with crowdfunding to date, not appreciating that the world has moved beyond their original socialist protectionist model, it is good to see New Zealand leading the field for freedom to invest and raise capital.

Indiana Secretary Of State Promotes New Crowdfunding Law
Crowdfund Insider

Governor Mike Pence signed into law, Senate Bill 375, Indiana’s exemption that allows investment crowdfunding for companies and investors located in the state. The law became in effect on July 1st.

StartEngine’s CEO Urges Crowdfunding Leaders To Push SEC To Release Title III Rules
Samantha Hurst – Crowdfund Insider

On Wednesday more than 40 participants from the crowdfunding industry gathered on a call to discuss key topics about the industry’s future. Those on the call were urged to join the #VoteOnCF movement, a campaign that urges the SEC to vote on the proposed rules of Title III.

PLY: While busily suing anybody they could, the Mary Jo White SEC has been disappointing with its complete inability to bring forward rules to fit the law passed years ago…

Other stories

Why CFTC Reauthorization Matters
Michael Dunn, Richard Shilts & Matthew Kulkin – Hill

PLY: A useful blog post from, amongst others former Acting Chairman and Commissioner Michael Dunn.

CFTC Staff Issues Extension Of No – Action Relief To Southwest Power
Mondo Visione

CFTC Divisions of Clearing and Risk, Market Oversight, and Swap Dealer and Intermediary Oversight (Divisions) issued a no-action letter to Southwest Power Pool that extends, for a limited period of time, the relief previously granted by the Divisions.

Egypt Seeks To Have First, Biggest Commodities Exchange In MENA
Amwal Al Ghad

Egypt plans to launch the first and biggest Commodities exchange in the Middle East in the coming period, said Minister of Supply Khaled Hanafy.

PLY: A great idea but clearly the sheer lack of commerce-friendly law in Egypt is a problem? The clunking government anti-business machine needs to be dismantled, in line with the original precepts of the Arab spring.

Brokers Under Scanner For Non-Reporting Of Suspicious Transaction Reports To Financial Intelligence Unit
Economic Times

Amid concerns over possible money laundering through stock markets, lapses have been found in online submission of Suspicious Transaction Reports (STRs) by many brokers and other market entities to the government’s Financial Intelligence Unit (FIU-IND).

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