August 27 2014

elb2For Whom the Bell Tolls: NYSE Shareholders it tolls for thee.

Serial value destroyer, Duncan Niederauer finally officially left the NYSE yesterday, after what amounts (in a rather packed field of C-suite mediocrity) to perhaps the least successful tenure as an exchange CEO in the history of the industry. Well, for the company it was a failure anyway; for Niederauer’s bank balance it was an unprecedented success – perhaps better than even his Spear Leads & Kellogg value destruction salary upside at Goldmans. You may recall previous criticism of DN’s, er, management, garnered even less reader support than NLX can muster (and that is saying something! – readers perceive both strongly net negative).

However no CEO has yet equalled Duncan’s remarkable record of value destruction: $11 billion evaporated in pure stock price (and let’s not even start on the follies of NYSE Technologies or other wastrel projects which burned additional cash). No wonder DN wore a demented cheshire cat grin yesterday at the closing ceremony where his family assembled to ring the bell (a really useful commercial deployment of the bell sequence incidentally). It is scarcely credible to believe he walked away with another $44 million dollars yesterday for ‘completing’ his contract (i.e. totally failing, then selling up, for which he apparently got another $10 million failure ‘bonus’). (I know, I know, “failure bonus” is a genuine anglo-Latin oxymoron). Rumour has it “Duncan the value destroyer” now fancies his chances in politics. True Washington (or Albany) is already utterly dysfunctional, disorganised and spendthrift, so he could fit in easily I suppose. However, my sunny Reaganite optimist disposition reckons it is only fair to suggest that the American political system doesn’t deserve another wastrel incompetent plutocrat whose only clear success in business appears to have been personal enrichment.

Meanwhile, on the day the bell was rung by the Niederauer family, the OPRA data feed operated by NYSE Technology via its SIAC subsidiary was out of action for several hours, affecting the entire nationwide equity options marketplace. As the peals chimed, the data plumbing wasn’t working: it marked a fitting Duncan bell end – roughly a billion dollars of value lost per ding.

* * *

To today’s other stories: LME exits US aluminum suit, SEC equity pilot looming, Singapore faces forex shakeup (just like everywhere else), Shenzhen eying its own through train…and more from Africa, Europe, Middle East and Asia, not forgetting America north and south as well as Europe. Lots of crowdfunding news as P2P lending gets sufficiently large that the consultant classes are muscling in. Bitcoin developments too as experts plead for Euro-US regulatory detente as worries grow over ETD clearing becoming more regulated while there’s a fascinating story of Japan’s new index. Happy scrolling…

Public Markets

LME Dismissed From Aluminum Antitrust Case (subscription)
Matthew Cowley – Wall Street Journal

A US court has dismissed LME as a defendant in an antitrust case in which aluminum prices were allegedly manipulated, saying the London-based exchange has U.K. sovereign immunity. LME is privately owned and operated for profit by HKEX, but U.S. District Judge Katherine B. Forrest in Manhattan accepted the exchange’s argument that it is also considered an organ of the U.K. government.

EI reported on December 6th that LME asked a panel of U.S. judges to assign a federal court in Manhattan to handle a series of antitrust lawsuits.

HKEx press release here.

SEC Announces Pilot Plan To Assess Stock Market Tick Size Impact For Smaller Companies
Mondo Visione

SEC announced that the National Securities Exchanges (NSE) and the Financial Industry Regulatory Authority (FINRA) filed a proposal to establish a national market system plan to implement a targeted 12-month pilot program that will widen minimum quoting and trading increments (tick sizes) for certain stocks with smaller capitalization. The Commission plans to use the pilot program to assess whether such changes would enhance market quality for smaller capitalization stocks for the benefit of investors and issuers.

BSE Writes To SEBI On NSE’s ‘Unfair’ Trade Practices
Palak Shah – Economic Times

BSE has written a letter to SEBI alleging that rival NSE and its associate DotEx International were acting in an unfair manner by trying to block trade flow to BSE.

PLY: Letter alleges DotEx receives BSE feeds for free but was charging a fee for providing the same to its members…

Bursa Malaysia Introduces ASEAN Post Trade Services
Mondo Visione

Bursa Malaysia introduced ASEAN Post Trade services to its POs for outbound (non-Bursa Malaysia Securities’) trades executed on participating ASEAN stock exchanges that are currently on the ASEAN Trading Link. These post trade services are available on subscription basis.

EI reported on August 26th launching of the ASEAN CIS Framework to facilitate cross-border offers of CIS to retail investors.

PLY: KL exchange linking with SGX and SET – in a manner not dissimilar to the failed ASX-SGX linkage of some years ago.

Singapore Needs To Keep Its Financial Reform Ball Rolling (subscription)
Jeremy Grant – Financial Times

Foreign exchange trading desks in Singapore, Asia’s largest forex hub, have changed beyond recognition.

First, there has been the impact of the electronic trading revolution that has swept those markets in recent years. Traders who once set up currency deals on the phone have been either laid off or are waiting while the banks figure out how to adjust to a new world where machines do the trading.

PLY: The same situation applies to every financial centre – expect any form of shock to banks to see wholesale layoffs in voice broking.

BMV Joins The Sustainable Stock Exchanges (SSE)
Mondo Visione

BMV (Mexican Stock Exchange) has announced its adhesion as a Partner Exchange to the SSE Initiative. The initiative is the learning platform to explore how stock exchanges can work together with investors, regulators and companies to improve corporate transparency and eventually performance in ESG issues in order to foster responsible and long-term investment approaches.

EI reported most recently on June 16th ASX and on July 24th Colombian Securities Exchange (BVC) announced joining SSE.

PLY: I remain acutely wary of this initiative – it may yet induce back door left wing ‘slactivist’ reaction which blunts the power of pure markets.

FMC Proposes Uniform Criteria For Warehouse Service Providers
Business Standard

FMC has proposed uniform criteria for all warehouse service providers (WSPs), in a draft set of guidelines. It has invited feedback till September 15.

PLY: A simple uniformity would be useful, ensuring all the warehouses exist being a good starting point. Again the devil is in avoiding over-prescription.

Private Markets

NSE H1 Profit Falls

Nairobi Securities Exchange (NSE) which is listing its shares next month, posted a 29% YoY fall in its pretax profit for the first half to 158.2 mln shillings (USD$1.78 mln). The 60-year old bourse, whose IPO closed on Aug. 12 ahead of the listing, said earnings figures showed an increase in total revenues after trading of equities rose. Trading in the bourse’s shares starts on Sept. 9.

SZSE Explores Stock Pipeline With Hong Kong

SZSE has submitted a plan to launch a programme letting it connect to Hong Kong’s stock market like one planned for Shanghai, media reports said on Wednesday.

EI reported on August 25th that HKEx completed connectivity test for Shanghai-Hong Kong stock connect. 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.

PLY: Through train momentum is gathering – can it help keep Hong Kong on the map long-term?

Energy Firms Eye Opportunities In Mexican Power (subscription)
Alexander Osipovich – Risk

The Electric Industry Act signed by President Enrique Peña Nieto on August 11 is part of a broader package of reforms that will also liberalise the country’s oil and gas sector. Notably, the law sharply reduces the role of Mexico’s government-owned electric utility, the CFE and requires the formation of a new wholesale spot market, in which generators, power marketers and large consumers will come together to buy and sell electricity.

PLY: Clearly BMV will be eager to get into this market. Might they join forces with ICAP – they have already have a j.v. in bonds, or simply build their own platform? Either way a very exciting development, as Mayer Brown Partner Jose Valera pertinently notes: “Opportunities for investors are going to be vast and varied.” …a fitting epithet to the entire world of opportunity which is the exchange industry!

OKCoin Audit Reveals High Reserves
Troy Kuhn – Bitness ETC

An audit of Chinese Bitcoin exchange OKCoin revealed that it holds 104.86% of the required Bitcoin reserves to cover customer balances. The company also intends to install a cryptographic “Merkle tree” verification system that will allow customers to ensure that their account balance was a part of the audit.

Other Chinese exchanges are also planning on auditing their demands as customers are demanding more transparency in accounting practices. BTC China recently announced that it will also get its wallets audited by an independent third party. Huobi is also working on integrating its newly-acquired multi-signature wallet service Quickwallet and implementing its own Merkle tree-based verification system.

PLY: The BTC exchange sector is progressing rapidly especially in customer security areas, speaking of which here is a splendid summary of the exchange market overall:

Digital Evolutions : The Coming Of Age Of Digital Currency Trading Technology

PLY: Alastair McAlpine, one of the ace team at Cinnober Financial Technology provides an excellent personal overview of the wonderful world of Bitcoin and how exchanges are expanding… If you are pondering the intersection of exchanges, markets and Bitcoin this is a good place to start.

International Megabank Santander Commissions Study On Bitcoin
Nermin Hajdarbegovic – CoinDesk

Global banking giant Santander has commissioned a study investigating the potential impact of bitcoin and other cryptocurrencies on the banking sector. As the 43rd largest company in the world, the multinational megabank has branches on five continents and upwards of 180,000 employees.

PLY: Future history of Santander: from megabank to microbank…or death. Pretty simple binary option really. One of many studying the arrival of Bitcoin but most appear to be commissioned from the rather corporately defeatist angle of “do I have to do anything about this or can I keep my job without taking a risk.” Thus will the banking industry fail to manage its inevitable decline.

Dividend News

CBOE will begin trading ex-dividend on August 27, 2014 of $0.21 per share, payment date is September 19.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat, FTIL rallies 2.5% as FTIL demonstrates its desire to use every legal lever possible – and hence also shows the key pitfall of the demented populist idiocy emanating from some regulatory circles of forcibly merging NSEL into MCX.

FTIL Contests CBI Charges Related To Setting Up Of MCX-SX
Economic Times

FTIL contested CBI charges that it had violated SEBI norms by entering into a buy back arrangement with a nationalised bank while setting up MCX-SX, saying the matter has already been settled by the Supreme Court.


U.S. Options Exchanges Hit By System Issues

U.S. options exchanges on Tuesday had problems receiving information from the main option data processor OPRA.

PLY: Apparently a problem with OPRA data aka the Securities Industry Automation Corporation (SIAC) feed owned by NYSE Data – somehow this outage appears appropriately ‘karmic’ to mark Duncan Niederauer’s last day, no?

Nasdaq PHLX Adds Data Specs To Options Feeds (subscription)
Max Bowie – Waters Technology

PHLX will add a customer/firm indicator to order exposure alerts provided via its Specialized Quote Feed, which provides data to option pricing models, and its PHLX Orders real-time order depth data product for complex and simple order books Wednesday October 1st.

TWSE Completes Rollout Of Second Generation FAST System-Access To Taiwan Market Now Faster & More Convenient
Mondo Visione

TWSE (Taiwan Stock Exchange) has successfully migrated all products to its second generation FAST (Fully Automated Securities Trading) system, replacing all existing trading platforms – tripling trading capacity, reducing latency by seventeen times, doubling system efficiency.

BondHawk Launches Fixed-Income Platform (subscription)
James Rundle – Waters Technology

Chicago-based platform offers real-time position and risk management, along with order management on a software-as-a-service model, priced through subscription plans.

ZSE Goes Electronic
All Africa

Electronic trading on the Zimbabwe Stock Exchange (ZSE) commences next month with three counters initially taking part in the historic trade. The company responsible for the project, Chengetedzai Depository Chengetedzai said yesterday three listed companies, CBZ Holdings, Cottco Holdings and FBC Holdings would be the first counters to trade electronically on September 8.

Hackers Will Leak Syrian Stock Exchange Database Unless Assad Tackles ISIS

A member of the group confirmed to me on Twitter that the site was taken down with a DoS attack, but said that the group had also gained access to the exchange’s servers and databases.

Project Viridium says it’s ready to release the exchange’s database, which would include financial information and user login credentials, if Assad doesn’t take action against the terrorist group.

PLY: A new development in the ongoing war against cyber terrorism (from an industry standpoint the politics behind the attack are not our issue). The Damascus exchange was due to run OMX but this was apparently never implemented due to the 2010 NASDAQ takeover which made any sale subject to sanctions…

Liquid Triples Datacenter Rack Space (subscription)
Timothy Bourgaize Murray – Waters Technology

Expansion ensures sufficient scalability and also provides redundancy, enhanced security, and significantly more capacity for clients to establish connections with third-party sell-side participants including exchanges and brokers.


Calls Mount For US-EU Swaps Rules Recognition (subscription)
Anish Puaar – Financial News

A lobby group whose members include some of the most well-known names in finance has urged regulators in the US and EU to agree a coordinated approach to new rules governing the swaps market to prevent severe disruption to cross-border OTC derivatives trading. The Committee on Capital Markets Regulation, a non-partisan group based in the US, made the call in a letter sent last week to Timothy Massad, chair of the CFTC, and Michel Barnier, the European commissioner for internal market and services.

PLY: Hear! Hear! …hopefully the bureaucrats are listening with an open mind (he said not especially hopefully).

Industry Fears Mifid Shake-Up Of Futures Clearing (subscription)
Cecile Sourbes – Risk

Dealers fear European rules designed to broaden access to OTC derivatives clearinghouses could be extended to the futures market, where a similar service already exists but is subject to much looser rules. If the stricter OTC standards were applied in the exchange-traded world, the service would require a radical rethink and may not be possible at all, banks and industry bodies argue.

The concerns were sparked by the ESMA, in its draft standards on the implementation of the revised Markets in Financial Instruments Directive (Mifid II). In its May 22 proposals, ESMA asked market participants whether there was any reason to have different rules on indirect clearing in the exchange-traded and OTC markets.

PLY: Very worrying as the EU has never found a regulatory noose it didn’t prefer tightening.


Methodology Change To The NASDAQ-100 Index
Market Watch

NASDAQ OMX announced changes to the methodology of the NASDAQ-100 Index. The next re-ranking will occur Friday, December 19, 2014.

NASDAQ press release here.

How a Novice Quant Developed An Index For Changing Japan

Two years after being plucked from the ranks of exchange product developers to design the JPX-Nikkei Index 400. Daisuke Tanaka finds himself at the center of a corporate revolution.

Bespectacled and lean at 40, the lifelong employee of Japan Exchange is executing a plan backed by the government to shame corporate executives into boosting profits rather than hoarding cash. Tanaka’s index, which aims to stoke the economy, is changing company behavior and winning fans such as Goldman Sachs. even as detractors deride its makeup and say it will cause investors to buy when valuations peak.

PLY: Fascinating, long live open markets and the product innovation they spur!

Career Paths

Bloomberg reported that NYSE. promoted Paul Adcock to oversee day-to-day operations of its U.S. stock exchanges.

MV reported that SEC announced it has named James Schnurr as its Chief Accountant.

CBOE announced that its BoDs promoted five staff members to officer positions.

Jim Lubin was named VP, former Senior MD, CBOE Futures Exchange (CFE).
Jim Enstrom was named VP & CAE.
Lita Frazier was named VP, Government Relations.
Alicia Goldberg was named VP, Statistical Analysis.
Andy Spiwak was named VP, Regulatory Services.

Ventures reported that Peter Mwangi, former CEO of Nairobi Securities Exchange (NSE) has been appointed Group CEO of Old Mutual Kenya. He will now take over the helm of leadership at the insurer’s Kenya subsidiary, from Rueben Java, who will move to southern Africa to oversee the Group’s Life business.

EI reported on August 22nd that Nairobi Securities Exchange (NSE) announced Mr. Peter K. Mwangi,CEO is to step down from his position effective November 23, 2014.

Following the call for interest for the renewal of the Consultative Working Group for the Secondary Markets Standing Committee, ESMA announced the composition of the new group.

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

Rapporteurs: Alberto Garcia, Carsten Ostermann, Nuno Casel, Catherine Sutcliffe

Members of the SMSC consultative group:

Chris Allen, Global Group Head of Regulatory Policy, Barclays
Palle Broman, Director, Markets Regulation, Jyske Bank
Angela Fenwick, Project Leader/MD, Banca IMI
Daniel Kapffer, COO Capital Markets & Asset Management, DekaBank
Michelle Neal, Global Head of Listed Derivatives, Markets Clearing & FIC Market Structure, Deutsche Bank AG
Magnus Billing, President, Nasdaq OMX Nordic
Godfried de Vidts, Director of European Affairs, ICAP
Mark Hemsley, Chairman & CEO Bats, Chi-X-Europe
Bernd Mack, Executive VP, Head of Market Structure, Eurex Frankfurt AG
Jorge Yzaguirre, Head of Equity Unit, BME
Giuseppe Catalano, Legal & Corporate Affairs Executive Director, Indesit Company SpA
Remco Lenterman, MD, IMC Financial Markets
Virginie Saade, MD, Execution Services & Market Structure, KCG
Constantin Cotzias, Director, Bloomberg Europe
Marcus Schueler, Head of Regulatory Affairs, Markit
Thijs Aaten, MD Treasury & Trading, APG Asset Management
Dale Brooksbank, Head of Trading, EMEA, State Street Global Advisors Limited
Øyvind Schanke, Global Head of Equity Trading, Norges Bank Investment Management (NBIM)
Bartosz Dziemaszkiewicz, VP, Polish Individual Investors Association
Peter Gomber, Professor of E-Finance, Goethe University Frankfurt
Josina Kamerling, Head of Regulatory Outreach EMEA, CFA Institute
Benoit Lallemand, Co-Head of Policy Analysis, Finance Watch
Nicola (Niki) Beattie, Founder & CEO, Market Structure Partners

PLY: A very interesting line up. A few items of dead wood as befits most every EU committee but overall pretty strong (Hemsley, Billing, DeVidts, Schueler, Gomber amongst those clearly on the plus side of the ledger).

Financial Calendar


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

Interactive Brokers Group SVP Milan Galik sold 1800 shares Friday, August 22nd at an average price of $23.41 (bargain $42,138.00). He now owns 735,617 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

LSE “Hold” Rating Restated By Beaufort Securities.
Numis Securities Ltd Reaffirmed Their “Under Review” Rating on LSE.

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.


P2P Lending Should Focus On Partners, New Opportunities & Security
Crowdfund Insider

A recent study published by Cognizant addressing the fast growing p2p lending space in the United States. The report calls the market “maturing” and makes recommendations for participants to maintain growth. Prosper and Lending Club, the two largest P2P lenders in the space domestically, generated over $2.4 bln in loans during 2013. This was an impressive increase from the $871 mln in loans in 2012. The total number is expected to increase dramatically in lending club and prosper 2014. The amount of lending shifting to online platforms is finally starting to wake the sleepy banking industry.

PLY: You can always tell when a market is taking off: the consultants move in to find holes they – and only they (naturally!) – can fill…

New P2P Lender Launches With £20 Mln First-Year Lending Target
Paul Thomas – Moneymarketing

A new p2p lending platform has launched with aims of lending around £20 mln in its first financial year. The company takes a one-off 3 to 5% arrangement fee from borrowers and passes the full amount of the gross interest, which it says will be between 5 and 11% per annum, to the crowd of private lenders.

Kentucky Announces New Crowdfunding Bill
Samantha Hurst – Crowdfund Insider

The Commonwealth of Kentucky Jumps from 49th to 4th in Entrepreneur Ranking According to State Entrepreneurship Index (SEI). Kentucky representative, Steve Rigg, announced on Monday that he is filing new crowdfunding legislation to bring the funding option to his growing, entrepreneurial state. The General Assembly will reconvene in January but the bill is up for discussion now.

Wisconsin Crowdfunding Law Hits Hurdle As Bank Provision Adds Challenge
JD Alois – Crowdfund Insider

Wisconsin’s crowdfunding law went into effect this past June, signed into law by Governor Scott Walker. The state crowdfunding exemption allows entrepreneurs to raise up to $2 mln via an online investment platform ($1 mln without an audit). The law was unique in their approach to the definition of an accredited investor. Recognizing regional differences the state of Wisconsin defines an accredited investor as an individual who earns $100,000 – in contrast to the federal definition that defines the barrier as twice that amount.

Other stories

New Stock Exchange Programme Could Lead To More Scottish IPOs – If The Price Is Right

The ELITE programme launched recently by the LSE is intended to help fast-growing companies reach the point where a public listing could be a viable next step for growth. But will it make a difference in Scotland, which in recent years had a tentative relationship with the public markets?

Previously, Scotland’s business community has shown little enthusiasm for public stock exchange listings, despite the potential for IPOs to help take companies to the next stage of growth. If anything there has, in fact, been a reduction in the number of Scottish listed companies, with many of the established businesses being taken over.

PLY: There is an exciting moment looming in the UK. In September Scotland might vote for independence, in which case suddenly the Mediterranean benchmark for fiscal profligacy will have new competition from the North sea. Even if the Scots vote to stay in the UK, they will get “devomax” which means they have to run their own budget – that ought to ultimately help move the Scottish away from the dissolute French model of economic misunderstanding to something more broadly following a capitalist path (probably, alas, after a micro-Argentine meltdown).

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