August 27 2015

elb2

Bold move: Istanbul jumps to buy 40% of the barely merged Pakistan exchange. Chinese regulators struggle to realise their own impotence in the face of even a relatively ‘open’ marketplace. Plus 500 on target for acquisition by Playtech. Exchanges and Barclays see market rigging lawsuit struck out.

By the way, amidst this week’s market turmoil, I have been asked to chat on Fox Business News channel this afternoon at 1600 EST.

In other news, Young Markets is looming: latest speakers to add to the roster include more excellent Bitcoin / Blockchain thinkers and I am delighted to say also, NASDAQ’s brilliant Peter Jessup will be discussing crunchy data topics. It’s all private, Chatham House rules and no media. Get ahead of the curve with our unique future of finance forum: September 17th, Warsaw. Email me for registration details.

Public Markets

Betfair Q1 FY16 Trading Update
Betfair

  1. Q1 FY15: revenue £135.4m, up 15%, EBITDA £41.0m, up 19%.

Betfair and Paddy Power are to combine in an all-stock merger to create the world’s largest online gambling company, reported yesterday.

 

Playtech H1 2015 Results
Playtech

  1. H1 2014: total revenue Eur 286.0 mln, up 33%, adj. EBITDA Eur 112.9 mln, up 16%, adj. net profit 115.0 mln, up 19%.

PLY: Amongst €301.8m in net cash outflows was €177m related to acquisitions made in the period including TradeFX and YoYo Games and  €84m related to investment in shares in Ladbrokes & Plus500.

Playtech Chairman Alan Jackson said he had “great confidence” in future, acquisition-fuelled, growth, noting:

“We have completed a series of strategic acquisitions to create and enhance our new financials division, a high-growth and regulated industry, and our continued operational delivery across all business segments has translated into a strong financial performance across all key metrics, with revenues up by a third in the half year.

“Our gaming business continues to go from strength to strength with our strategy of focusing on regulated markets driving growth.

Read our Premium Plus500 Turmoil & Deal – Brief – Part 2.

PLY: Including this on account of their expanding financial activity including the ongoing Plus 500 acquisition. NB I still feel uncomfortable about Plus 500’s reported finances.

 

U.S. HFT Case Involving Seven Exchanges & Barclays Is Dismissed
MondoVisione

Judge Dismisses Lawsuit Inspired By ‘Flash Boys’ (subscription)
Bradley Hope – Wall Street Journal

Exchanges, Barclays Win Dismissal Of US HFT Case
Jonathan Stempel – Reuters

Major U.S. stock exchanges & Barclays on Wednesday won the dismissal of nationwide litigation in which pension funds and other investors accused them of rigging markets to benefit high-frequency traders.

U.S. District Judge Jesse Furman in Manhattan said federal law affords exchanges “absolute immunity” from the plaintiffs’ key claims, including over the creation of “complex order types” and proprietary data feeds that can benefit rapid traders, because of their status as self-regulatory organizations.

In a 51-page decision, Furman also said the plaintiffs did not show they reasonably relied on Barclays’ misrepresentations about the safety of its Barclays LX “dark pool,” including that they were not at risk of being exploited by fast traders.

The lawsuit accused Barclays and seven exchanges (BATS, Chicago SE, Direct Edge, NASDAQ Stock Market, NASDAQ OMX BX, NYSE and NYSE Arca) of giving high-frequency traders favored treatment, costing less-favored investors billions of dollars.

PLY: From the EI Premium Service: “What the exchanges did demonstrate was a short-termist ‘low hanging fruit’ grasping approach…not spending enough time considering what they were getting into… True, I can happily blow my trumpet having long been eager to help exchanges think beyond the linear… the simple truth is that the exchanges have long been in danger of ‘losing’ the market because they simply kept adding faster tech without considering the old rulebooks (which still I would contend need judicious consideration and upgrading).

We’re at a fascinating inflection point…”

  • Our loyal subscribers can read more here, thank you for supporting the industry daily Exchange Invest. If you are amongst those venues/interested parties who either haven’t paid your subscription bills, or aren’t subscribed, well you’re behind the curve today…

 

Overstock.com To Acquire SpeedRoute Technologies & Related Businesses
GLOBE NEWSWIRE

Overstock.com acquired a group of related, privately held financial technology companies, and has closed the acquisition of the assets of one of those companies. These acquisitions were made through Overstock’s t0 subsidiary (launch reported here).

SpeedRoute currently routes approximately 2.5% of U.S. equity order flow. The acquisition of SpeedRoute and its underlying technologies positions Overstock to connect to trading to the entire U.S. equity market.

PLY: Fascinating stuff.

 

BlackRock To Acquire Robo-Adviser
Jessica Toonkel – Reuters

BlackRock is acquiring a San Francisco-based robo-adviser, FutureAdvisor. Unlike competitors in this space, BlackRock does not plan to target individual investors, rather expecting to use FutureAdvisor to enable banks, brokerage firms, insurers and 401(k) plans to use the company’s digital platform to serve mass affluent investors & millennials.

PLY: A few years back independent financial advisors mostly proved the complete lack of value in their services by noting new regulations would kill off investment services for retail clients. Naturally technology delivered a solution and a vastly more cost effective one than many commission hungry old line IFAs too…

CFTC Issues Orders Of Foreign Board Of Trade Registration To Permit Direct Access For ICE Futures Canada & Montréal Exchange
CFTC

 

Peru Stock Tax Exemption To Help Keep MSCI Ranking, Segura Says
John Quigley – Bloomberg

Peru is taking steps to exempt more liquid stocks from capital gains tax to boost trading and avoid being reclassified as a frontier market by MSCI, Finance Minister Alonso Segura said.

 

Argentina – Gov’t Launches Capital Market Financing Measures For PYMEs
Buenos Aires Herald

Economy Minister Axel Kicillof announced a new National Securities Commission (CNV) regime allowing SMEs (PYMEs in Spanish) to reduce financing costs and gain major access to the financial market.

Private Markets

BIST Issues LoI To Buy 40% Strategic Stake In PSE
Ismail Dilawar – Business Recorder

BIST has issued a Letter of Intent (LoI) to the Government of Pakistan for acquiring 40% strategic shares in Pakistan SE (PSE). The letter came as the country’s three stock exchanges in Karachi, Lahore and Islamabad are set to merge into a new integrated national bourse.

Read our Premium Pakistan Exchanges Merger Brief.

PLY: A bold move and beyond the traditional “Ottoman Empire” boundaries of prior BIST deals too which have mostly involved smaller markets closer to Istanbul.

 

U.K. Boutique Autonomous Launches Dark Pool Service
Giles Turner & Tim Cave – Wall Street Journal

Autonomous Research LLP, a U.K. research provider known for its coverage of financial stocks, has launched a new electronic trading service aimed at capitalizing on rules that will force investors to better scrutinize the quality of services provided by their brokers.

The service, called Sonic Dark, launched Monday last week, and allows institutional clients to trade stocks on around 24 dark pools, according to Tony Nash, partner at Autonomous.

PLY: An interesting product, partly driven by EU rules which have over-complexified execution without adding any value to the system (qv ‘where America treads, Europe follows eventually’ …EI passim).

 

Dalian Commodity Exchange, Ningbo Commodity Exchange Launch Pilot For Switch Of Futures, Spot Warehouse Receipts
MondoVisione

PLY: In other news the British Daily Mail which specialises in largely avoiding the facts but maximising the scandal has some photos of the Fanya Metals Exchange boss being subject to a fairly brutal variation on the citizens arrest which we reported the other day.

 

BSE Forges Ahead With Demutualization
Isaac Pinielo – Mmegi

PLY: For those clamouring for the alphabet to be deregulated to enable more unique acronyms, this is a good case: the Botswana Stock Exchange, not Bombay and others with the same initials… Good to see this BSE moving ahead.

Special Section: FTI, NSEL, India at the Crossroads

PLY: We’re down to only giggling at the imperious daftness of 63 Moons (why can’t they just rebrand FTIL “JigCorp” and make it easier for us all?) which is up 6% as markets bounce while MCX is up 3%. Resolution of NSEL remains about as proximate as the closest of those 63 moons to our earthly orbit.

Technology

BNY Mellon Pricing Glitch Affects Billions Of Dollars Of Funds
Jessica Toonkel & Tim McLaughlin – Reuters

BNY Mellon Corp was scrambling to fix a computer glitch on Wednesday that has delayed how billions of dollars of assets are valued, throwing the U.S. funds industry into disarray and damaging the reputation of the world’s largest custody bank.

The system, run by financial software provider SunGard, resumed with limited capacity on Tuesday but was still not fully operational on Wednesday, leaving BNY Mellon with a backlog of funds to price.

PLY: Not a good moment in the history of Sungard but perhaps not the first time we will see its rather, er, inherently legacy, systems under such stress… Expect a boardroom rumble at BNY Mellon, albeit NEDs always tend to opt for the ‘safe’ (i.e. broadly incumbent) option and that may yet prove to be a tricky and risky place to be as markets adopt new systems devised in the digital age, not broadly before it. (Regulators take note too btw, I will not tire of quoting the late great Jean-Francois Theodore’s brutal realism: “just because you are old it doesn’t make you a benchmark” ).

Products

DGCX Waives Trade Fees For India Gold & Rupee Quanto Futures Contracts
Maria Nikolova – LeapRate

Trade fees waiver extended until December 31, 2015.

 

ASIC: Two Overseas Entities Agree To Stop Providing Unlicensed FX Services
MondoVisione

Following ASIC concerns, British Virgin Island company FIBO Group Limited (FIBO) and a Cyprus company, Trading Point of Financial Instruments Limited (also known by the trading name XM.com) (Trading Point), have each agreed to cease providing unlicensed financial services to Australians.

PLY: Interesting shuffle – these brokers had some form of Australian regulated entity which they used to suggest they were safely within the bosom of ASIC when in fact their trades were all dropping outside the Antipodes as the Oz regulated vehicles were essentially inactive.

Career Paths

Waters Technology reports that Terry Roche, formerly COO at NYSE Technologies, has become a principal at Tabb Group, leading its financial technology practice.

PLY: As I recall, Roche was a Reuters exec who left to join Jon Robson and then, I suspect, realised they had made a faux pas in their career moves as the end of the juddering juggernaut of financial technology which made such a splash (akin to the Titanic in many ways) was sensibly cut adrift by new owners ICE.

China Market Chaos Blamed On Exodus Of Regulatory ‘Turtles’
Samuel Shen & Engen Tham – Reuters

At the height of the 2008 financial crisis, as Wall Street slashed jobs, Beijing took advantage of the disarray to poach top Chinese financial talent from overseas to help reform its stock markets. By summer 2015, CSRC needed them more than ever; a year-long market boom had imploded in a few weeks, and the government was desperate to keep the crisis from widening.

But the best and brightest returnees, known in China as “sea turtles”, had already left for the private sector, disillusioned and disappointed.

PLY: The blob doesn’t move in mysterious ways, it moves extra-slowly, enabled with a decision making process akin to crawler gears in a Mack truck used to hauling loads over hills. Meanwhile the Sino-blob moves with the sort of crawler gearbox deployed in the vast drilling rigs which can knock out a new Tokyo subway line without making much of a vibration above ground…but never go faster than walking pace (at full tilt!). Thus China now finds itself exposed with the political impetus embracing blanket blamestorming. The most worrying thing is what happens when this warning tremor gives way to a proper market quake (not saying it has to but the omens are suggesting it is a feasible outcome…).

Financial Calendar

28.08 – Record date LSEG interim dividend of 10.8 pence

28.08 – Record date for HKEx Interim dividend

Young Markets Future of Finance Symposium: Warsaw 17th September, email me for registration details.

New announcement – WFE General Assembly and Annual Meeting at the Kempinski Marsa Malaz hotel in Doha, Qatar, on October 19-21.

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

Share Notes

Interactive Brokers President Milan Galik sold 12,591 shares Tuesday, August 25th at $37.36 (bargain $470,399.76).

Check our Share Notes section in Premium.

Analyst Notes

Barclays Raised Target Price On CME From $100.00 To $101.00 – “Equal Weight” Rating
Barclays Hoisted Price Target On CBOE From $56.00 To $57.00 – “Equal Weight” Rating

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

Other stories

Heard Of China’s Fake Rolexes? Now There’s A Fake Goldman Sachs
Shai Oster – Bloomberg

PLY: Not quite on piste but as it’s summer, I have to include this evidence that doing God’s work can presumably be Confucian too… Naturally Goldman would never copy anything or anybody, anywhere at any time, nooooooo..

 

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