August 29 2014

elb2An interesting Friday as August draws to a close and continental Europe prepares for a massive annual traffic jam.

There’s a lot of interesting meaty morsels provoking my pith today, from the sale of a tranche of Istanbul to signs of worrying bank protectionism flying in the face of Dodd-EMIR-Frank while the bankers’ blood brother bourse turns supplicant about paying egregious fees. CME looks to help build an Egyptian wheat exchange (the risk is in the grass roots). Dark pools elegantly defended against EU anti-market insurgency while Hong Kong brokers stock up on pizza for a weekend testing the points on the through train to Shanghai… As expected, Sharon Bowles defending low latency jump from Econ Chair to LSE board. KRX strengthens risk controls a year after HanMag’s 143 second descent into balance sheet obsolescence while there is additional news from India, Africa, Europe, America and a veritable cornucopia of points of the globe – happy scrolling.

Public Markets

BIST In Talks With European, US Giant For Share Sale
Hülya Güler – Hurriyet Daily News

Turkey’s stock exchange Borsa Istanbul (BIST) is holding talks about the potential sale of a minority stake only months after a landmark deal with NASDAQ.

EI reported on January 03rd that Nasdaq acquired 5% in Borsa Istanbul.

PLY: A deal has been brewing for some time and now I believe there are requests for interest due by the end of September. Multiple investment houses have been invited to tender interest.

Bulgarian SE Financial Results
BSE

Highlights

Total Revenue BGN 1,236,000 (USD 832781), down 25%
Operating Profit BGN 204,000 (USD 137449), down 62%
Operating Expenses BGN 1032000 (USD 695331), down 7%
Net Profit BGN 245000 (USD 165073), down 60%

PLY: Caught between a banking scandal and a hard place, through no fault of its own, Bulgarian SE management have had a tough time of it recently and these results, if anything, are more encouraging than might have been expected given the scandal which has submerged much of government and the local banking system alike.

Egypt In Talks With CME To Build Biggest Commodities Exchange In MENA
Zawya

Egypt plans to get benefit from CME’s wide expertise, seeking to establish its first and biggest commodities exchange in the Middle East.

Egypt’s Minister of Supply Khaled Hanafy announced Wednesday that his country, represented in officials from the Armed Forces, Cabinet and Arab Contractors Company, will start a number of meetings with CME chairman and board members. The meetings aimed to review means of technical cooperation and support between the two countries to build the first commodities exchange in Egypt and the Middle East, dedicated for the grains and wheat.

EI reported on August 25th that Egypt plans to launch the first and biggest commodities exchange in the Middle East in the coming period.

PLY: A wheat market in Egypt makes huge geographic and core commodity common sense. The problem is the inability of Egypt and its neighbours to leave behind post Imperial bureaucracy and actually resolve a marker of internal (let alone cross border) free trade. The Arab spring was begun due to the frustrations of merchants in Tunisia, Egypt and elsewhere at the appalling trade stifling bureaucracy which perpetuates poverty and leaves a huge percentage of produce unsaleable as it wilts before delivery. (Rem: fully 50% of perishable goods perish before they reach a market). Adding a shiny new CME tier on top may make a great photo op for the generals and assorted politicians but it does not presage an improvement in living standards and commodity trade without wholesale economic reform. Hopefully during negotiations the CME can roll out its advocates for free markets such as the ever passionate Leo Melamed to explain just what needs to be done and get the ball rolling for the Arab spring which has been hijacked by all manner of odd bedfellows, none of whom appear to endorse freedom to trade…

LSE Cash Call Supports Underwriting Cartel (subscription)
Neil Collins – Financial Times

The LSE is in the middle of a well-flagged, and generally well-received rights issue to pay for a sensible acquisition – a fine opportunity to show how efficiently capital can be raised on the exchange at a reasonable cost to the shareholders.

PLY: Gosh in some ways this article gets off on the wrong foot, addressing Chris Gibson-Smith. Yes, I know, “Who?” Apparently he is still the Chairman of the LSE. The question of just why LSE allows the bloodsucking leeches of the sell side to charge 25 Mln Pounds ($ 41.49 Mln) for placing shares at a 30% discount is an absolutely appropriate one to ask – but surely address it to Xavier Rolet who, as we know, made sure he entered office in a blood brother pact with the investment banks as demonstrated by his leaving FESE at their behest as one of his first tasks in a sort of Magic Flute does bourses round of trials.

The biggest single problem facing cash equity platforms currently is not their own outrageously competitive fee structures, it is the enforced intermediation where prices are outlandish for the ‘services’ provided. This needs to change but regulators and politicians are always scared to move against the banks (not that many exchanges have leaders willing to lead the way either, mind). Overall underwriting is anyway a process that is all but outmoded nowadays – it’s time for radical change..and the regulators might care to consider whether there is an implicit incentive to use the exchange being paid through these egregious fees when a more dynamic management approach would suggest reform was required?

HOTTER ON METALS: Court Ruling On LME Inevitable
Metal Bulletin

It could be argued that the ruling in favour of the LME, made by a US judge in a Manhattan court this week, became an inevitability in December last year when UC Rusal announced it was taking legal action against the exchange over its planned changes to its warehousing rules, on the grounds that the consultation process was flawed and didn’t include a risk or cost.

EI reported on July 31st that LME’s attempts to cut backlogs at warehouses with new rules are likely to be delayed again.

Bursa Malaysia – Why Did Revenue For Derivatives Market Fall?
Malaymail Online

Bursa Malaysia’s management thinks the underlying strong fundamentals of the domestic economy will lead to more foreign funds inflow and continuing support from local institutions for the equity market while the dry El Nino weather, which will affect palm oil production, will continue to affect trading of its two key contracts on the derivatives market – the FKLI and FCPO contracts.

Banks’ Pressure Stalls Opening Of U.S. Derivatives Trading Platform
Karen Brettell – Reuters

The first inter-dealer trading platform aimed at opening up credit derivatives markets to new competition has hit roadblocks due to resistance from some banks that dominate such trading, according to several people familiar with the situation. Derivatives markets continue to revolve around the small group of dominant banks, and credit markets have become more – not less – concentrated since the 2008 global financial crisis.

PLY: A clear inference here of a bank (or cartel) attacking against the public interest in a manner which ought to have the New York Attorney General, the CFTC and others salivating at the prospect of unleashing a million subpoenas. Regulators must get a grip on this asap as otherwise a flawed post OTC market structure will evolve and indeed IDBs will be restricted from expanding as per the remits clearly given under Dodd-EMIR-Frank. The wanton behaviour of banks to believe they are above the law must be curtailed if we are to have better markets.

(EI reported on July 31st that CME will acquire Trayport and FENICS by first acquiring all outstanding shares of GFI Group in exchange for $4.55 per share).

No Weekend For Hong Kong-Shanghai Brokers On Link Tests
Kana Nishizawa & Weiyi Lim – Bloomberg

PLY: It’s a big weekend in Hong Kong as brokers test the through train links ahead of launch…

EI reported on August 28th that ‘Traders Predict HK-Shanghai Stock Link Will Take Off’. On August 25th, HKEx completed connectivity test for Shanghai-Hong Kong stock connect. On August 20th, the Shanghai – Hong Kong ‘through train’ link will speed up reforms of China’s stock markets. And, on August 11th the first trial of the Shanghai-Hong Kong Stock Connect took place in the mainland.

Brussels Must See The Lighter Side Of Dark Pools – Or Watch City Innovation Wither
Robert Boardman – CITY A.M.

PLY: A pitch perfect intervention from ITG’s EMEA head Robert Boardman on the stupidity of the EU and its frankly moronic approach to dark pools which threaten to impoverish all the continent’s pension savers (well barring those who haven’t already had pension assets de facto stolen, such as in Hungary and Poland). As Boardman notes: “What we have is a regulatory experiment, drawn up by people inevitably divorced from the frontline of trading, and politically motivated to increase transparency in financial services above all else. But transparency is not a panacea. And in this case, it appears that the full consequences of this transparency have not been understood.”

There is much talk of a new cold war in the average media. The truth is the cold war right now is between the European Union and capitalism – such ‘conflicts’ always end badly.

FMC Unveils Uniform Norms For Accreditation Of Warehouses
Economic Times

The draft rules, on which public comments have been sought by September 15, come in the wake of Rs 5,600 ($933 mln) crore payment scam at the NSEL that surfaced in July last year, exposing loopholes in the system.

PLY: EI reported on August 27th that FMC has proposed uniform criteria for all warehouse service providers (WSPs), this story provides some additional detail to earlier reports.

HKEx Aims To Ensure Occupy Central Will Not Halt Trading (subscription)
Enoch Yiu – South China Morning Post

Hong Kong stock exchange (HKEx) and 450 brokerage houses have been working closely to ensure that retail investors will be able to trade on the local stock market if a planned protest by Occupy Central blocks streets in the central business district.

Private Markets

KRX To Debut New Price Limit System To Judge Mistaken Orders (subscription)
Song Jung – Financial Times

Korea Exchange (KRX) said on Friday it would introduce new safety measures to protect investors and counterparties from the fallout of erroneous derivatives transactions by incorporating a real time price limit system.

PLY: KRX works to further strengthen its systems following the HanMag Securities collapse last year when an algo suffered a 46.2 bln Won loss (the broker had only 20 bln in capital). The idea is that now the 143 seconds of pain will be alleviated with a price limit system having the power to reject orders. A useful additional tool but I still believe much much more ought to be done to stop the orders emerging from the brokers – collectivising the burden of security at the exchange is useful for the public interest but needlessly expensive for those counterparties not indulging in strategies which require risk nurturing.

TASE Switch To Monday-Friday Trade Backed By Brokers
Shoshanna Solomon – Bloomberg

Brokers in Tel Aviv Stock Exchange (TASE) favuor a proposal to align the stock exchange’s trading days with markets abroad, a plan that may lure more funds and pave the way for inclusion in MSCI’s Europe Index.

EI reported on August 26th that TASE supports shifting the bourse’s trading week to Monday to Friday.

PLY: In the startup world including fintech, Israel’s pulsating “startup nation” is already broadly regarded as being part of Europe…

Kenya Votes To Reintroduce Capital Gains Tax (subscription)
Katrina Manson – Financial Times

Kenya has voted to reintroduce capital gains tax for the first time in nearly 30 years in a move that potentially could damp interest in the red-hot Nairobi stock market and hit the booming domestic property market.

The move, which was approved by parliament this week but has yet to be signed into law by President Uhuru Kenyatta, will put Kenya in line with other top African economies, including South Africa, which introduced capital gains tax in 2001.

PLY: The arrival of or reintroduction of any ‘new’ tax is always an occasion for some reflective mourning.

FMC Turns The Heat On UCX, Orders A Forensic Audit Now
Ram Sahgal – Economic Times

FMC has directed the board of Universal Commodity Exchange (UCX) to appoint audit firm KPMG for conducting a forensic audit of the bourse, after having found last month that its promoter allegedly siphoned off funds from the exchange, a top regulatory official said.

“KPMG has been appointed to run a forensic audit of UCX after it was found prima facie that the latter’s promoter Commex Technology siphoned off funds belonging to the bourse’s other shareholders, to its group companies,” said Ramesh Abhishek, FMC chairman. “One of the main ToRs (terms of reference) of the audit is to trace the funds. It’s too early to say anything more,” he added when asked to elaborate.

Thailand To Curb Stock Manipulation With Hefty Fines
Anuchit Nguyen – Bloomberg

Thailand is planning new rules to check stock-market manipulation by allowing the regulator to file civil lawsuits and impose hefty fines on the law-breakers.

The rules take inspiration from the success of U.S. regulators in getting monetary settlements, Vorapol Socatiyanurak, secretary general of the Securities & Exchange Commission, said in an interview in Bangkok. A bill with the proposals has been sent to the National Council for Peace and Order, Thailand’s junta leaders.

Coinbase Starts A Row Over Wallet Insurance
Michael J. Casey & Paul Vigna – Wall Street Journal

In a post on its blog Wednesday, the San Francisco-based wallet provider belatedly announced that its customers had actually had their bitcoins insured for almost a year. “Given the recent claims of insurance in the industry, we thought it was appropriate to tell our users about it,” the firm said.

It’s not a mundane point. In the wake of Mt. Gox’s collapse it became abundantly clear that customers of cryptocurrency financial services were exposed to risks in a way that customers of traditional services aren’t. There is, for instance, no FDIC insurance for bitcoin wallets. Therefore, the question of insurance is an important one for customers of these firms.

BTC-E Bitcoin Exchange Steps Up Security
Global Bitcoin News

BTC-e is responding to the ever increasing threat of hacking in Bitcoin by adding 3 new security measures, available to customers immediately. Hacking attempts are prevalent in Bitcoin, making security upgrades of paramount importance. Earlier this week cannabis road, a Silkroad replacement, was hacked for over $100,000 worth of Bitcoin. How the attack was accomplished is still unknown.

What Makes Bitcoin Exchanges Tick?
Christoph Cronimund – CoinDesk

Exchanges play a central role in the bitcoin ecosystem. In addition to facilitating trade, they set exchange rates between bitcoin and fiat currencies such as the US dollar or the euro.

Rates can vary widely from E2E (which is where the arbitrageurs come in) and from minute to minute (where the other traders enter).

More Merchants To Accept Bitcoin Payments Via BitPay Deal
Stan Higgins – CoinDesk

Bitcoin payments processor BitPay has announced a new partnership with Demandware, Inc, an enterprise cloud e-commerce solutions provider.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is down 1%, FTIL nearer 3% off as the ED adds a new attachment but still a paucity of tangible auction news…

NSEL Scam: ED Attaches Rs 18.1 ($2.98 mln) Crore Assets Of Defaulting Firm
Economic Times

Initiating yet another action in the NSEL scam case, the Enforcement Directorate has attached assets worth Rs 18.1 ($2.98 mln) crore of an accused firm in connection with its money laundering probe.

According to an ED order, the agency has seized movable and immovable properties of the firm-Ms N K Proteins– in Mumbai, Noida, Ahmedabad and Palanpur in Gujarat under the criminal provisions of the Prevention of Money Laundering Act (PMLA).

Technology

IDC Expands Real-Time Bond Evaluated Pricing Service (subscription)
Faye Kilburn – Waters Technology

Interactive Data has expanded its continuous fixed income evaluated pricing service to provide users with real-time evaluated prices for US Treasury, agency and corporate bonds, TBA mortgage-backed securities, and mortgage-backed securities pass-through securities.

Products

Eurex Gears Up For Monday Swap Future Launch (subscription)
Luke Jeffs – FOW

Eurex has published the full contract specifications for its new swap future and confirmed it will have market-maker support at launch in the countdown to the debut on Monday of the first of many European swap futures contracts.

EI reported on August 19th that ‘with EurexOTC Clear Release 5.0, Eurex Clearing will extend its EurexOTC Clear service for IRS by additional functions and services’.

PDEx To Start Trading Deposit Certificates
Daryll E. D. Saclag – Business World

THE COUNTRY’S fixed income exchange will operate the trading platform – which will start September 1st – for long-term negotiable certificates of time deposits (LTNCDs), a central bank official yesterday said.

NCDEX Introduces Long Staple Cotton Bales Futures Contract
Samir Shah – Economic Times

NCDEX announced the launch of a long staple (29 mm) cotton bales contract.

The exchange will facilitate delivery of 29 mm cotton bales through Comtrack, its proprietary electronic commodity account ting system. The delivery centres are located in Maharashtra and Gujarat, the two main cotton producing states.

Career Paths

‘Gobsmacked’ Bowles Defends LSE Role (subscription)
Anish Puaar & Tim Cave – Financial News

Former MEP Sharon Bowles has strongly defended her decision to join the board of the LSE after being accused by another leading European politician of “selling her good reputation” by taking on the role so soon after leaving Parliament.

Bowles, who chaired the European Parliament’s influential Economics and Monetary Affairs Committee until May this year, told Financial News this morning that it was “gobsmacking” to suggest her appointment to the LSE was inappropriate.

PLY: Told you so! When EI reported on August 18th that Sharon Bowles will join the LSEG Board as NED I noted my discomfort with this low latency leap to the LSE, particularly given the shenanigans surrounding the last minute shuffling of the MIFID II agenda to include an open clearing objective which surely ought to have anyway been in EMIR anyway but was shuffled in by a London cartel of short-minded sell side individuals allied with the LSE itself.

As a career politician and lawyer, Mrs Bowles is busy trying to brazen her way out with typical bluster but alas an acute odour of unseemly haste with a possible hint of hypocrisy clings to her sudden appearance on the LSE board.

I disagree with Green MEP Sven Giegold however about her right to be on the LSE board – but agree with him about the unseemly speed, particularly given the generous transitionary MEP arrangements which Sharon Bowles availed herself of when she “retired” (aka recognised the writing on the wall for her seat/party) before the elections in May of this year.She will continue to receive her full MEP salary for 10 months, so I make that up to 7 will be simultaneous to her being on the payroll of the LSE.

Also, I would add a further question – when did these discussions start? I mean hiring an NED from start to finish in under 3 months strikes me as rapid, presuming the discussions started the day she left Parliament? – again the smell test is challenged. A sensible name to have on your non-executive roster has been sadly tarnished and the LSE hardly smells of roses in this either. An unfortunate story which I feel we have not heard the last of, yet.

Financial Calendar

Today

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

Next Week

TMX $0.40 quarterly dividend payment
Record date ASX 89.9c dividend
BGC Partners $0.12 quarterly dividend payment
FTIL Rs. 2 interim dividend payment

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

Share Notes

Interactive Brokers Group SVP Milan Galik sold 1,800 shares Tuesday, August 26th at an average price of $23.82 (bargain $42,876.00). He now owns 733,817 shares. Mr. Galik’s regular sales are chronicled on this specific page.

LSE Executive Director Raffaele Jerusalmi sold 40,469 shares Wednesday (bargain $1.365 mln), August 27th at an average price of 2034.10p. ($33.73). He now owns 52,745 shares.

Crowdfunding

China’s P2P Lending Shows Both Growth & Risk
Qian Ruisha – Ecns

China’s P2P lending boom has given rise to platforms that are doing well and ones that aren’t.

According to an internet finance report released Wednesday by Rong360, a leading financial service website, by the end of July, China had about 1,200 P2P loan websites, 136 of which had seen cash problems or even collapsed.

Other stories

FIA Releases Most Recent SEF Tracker
Futures Magazine

The fifth issue of FIA SEF Tracker, a periodic report on trading activity taking place on swap execution facilities, has been published.

CFTC Staff Issues Rule Interpretation Concerning Deposit Of Customer Funds With UK Depositories
Mondo Visione

Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight issued an interpretation of Commission Regulation 30.7(c) under the Commodity Exchange Act. The interpretation permits futures commission merchants FCMs to deposit customer funds margining foreign futures positions with UK-licensed investment firms that hold such funds in accordance with either UK Financial Conduct Authority’s (FCA) client money rules or as bank deposits subject to UK Prudential Regulation Authority (PRA) regulations.

PLY: Strikes me as sensible.

SFC Concludes Consultation On Exemptions For Disclosure
Mondo Visione

Hong Kong’s Securities and Futures Commission (SFC) released the Consultation Conclusions on Proposed Amendments to the Guidelines for the Exemption of Listed Corporations from Part XV of the Securities and Futures Ordinance (Disclosure of Interests).

Thomson Reuters Named Official Calculating Agent For CNT TAIBOR Benchmark – Thomson Reuters To Further Facilitate Internationalization Of Renminbi
Mondo Visione

Thomson Reuters has been appointed by Taipei Foreign Exchange Market Development Foundation (TFEMDF) as the official calculating agent for its offshore renminbi benchmark CNT TAIBOR (the Taipei Interbank Offered Rate). This key industry rate provides a formal benchmark for market participants to reference when pricing renminbi loans, interest rate contracts and derivatives products.Its calculation is based on daily rate contributions by 15 regional and global banks and is published at 11:15 am every trading day in Taiwan, starting September 1.

PLY: Very interesting, an offshore calculation by Reuters ought to hold considerable weight – an interesting move by Taiwan to become a key offshore RMB centre.

More Shareholder Engagement Seen Since Dodd-Frank
Juliana Kenny – Inside Counsel

The Dodd-Frank Wall Street Reform and Consumer Protection Act has had far-reaching effects on businesses in the U.S. since it went into effect in 2010. Aimed at regulating financial bodies to prevent another crisis as experienced in the years prior, certain measures have been put in place to keep tighter tabs on the practices of financial institutions and companies. Public companies face some different rules from private ones, and shareholder roles have shifted somewhat since the implementation of Dodd-Frank.

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