August 4 2014


CME choses cash man to run European Derivatives Exchange, as Euronext Amsterdam head resigns. Messaging competitor messaging threatens vendor shakeup, especially Bloomberg. SGX rules to avoid new penny stock debacle while the through train helps HKEX as KCG and Fidessa report numbers. Betfair in dividend chaos – embarrassing for auditors KPMG. Credit hub spat settled as complaints increase about overly prescriptive NY Bitcoin regulatory proposals. Meanwhile BTC is at the European Court where VAT exemption or application is being debated. Absurd question of the week: What is spot forex? Well, apparently the EU doesn’t know…

Despite being mid-summer, it’s a bumper day and I have added some premium content about the CME’s new European Exchange CEO appointment too…which leads neatly to:

Meanwhile, a friendly reminder: if you like the free stuff and want to support us building out the industry platform for markets, please join our top tier, it’s only $120 per annum and keeps this daily newsletter free (You can subscribe here). Recent stories include:

New: Has CME Europe Chosen the Right Man?

CME GFI & the New IDB Paradigm

NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

Public Markets

KCG Q2 Financial Results

KCG Holdings reported consolidated earnings of $8.9 million, or $0.08 per diluted share, for Q2 2014.

Net income for Q2 2014 included income from continuing operations, net of tax, of $9.0 million, or $0.08 per diluted share.

Fidessa – Interim Results For Period Ended June 30th 2014

Revenue GBP 137.1 mln, down 2%
Operating profit GBP 19.5 mln, down 4%
Pre-tax profit GBP 19.7 mln, down 4%
Diluted EPS 38p

ICE Benchmark Administration Completes ISDAFIX Transition

ICE announced that ICE Benchmark Administration (IBA) has formally taken over the role of Administrator of the ISDAFIX benchmark from ISDA.

IBA was appointed the new administrator in April (reported here), and formally commenced its role as the administrator on Friday, August 1 2014.

ISDAFIX benchmark represents the average mid-market swap rate for four major currencies: Euro (EUR), British pound (GBP), Swiss franc (CHF) and U.S. dollar (USD), at selected maturities on a daily basis. Market participants use the rate to price and settle swap contracts and as a reference rate for floating rate bonds.

BSE Seeks Answers From FTIL On Discounted MCX Stake Sale
Reena Zachariah & Palak Shah – The Economic Times

BSE has sought a clarification from FTIL on how its stake sale in MCX to Kotak Mahindra Bank at a discount to the market price would benefit the company’s shareholders.

“…the company (FTIL) has informed that it has entered into a share purchase agreement with Kotak Mahindra Bank to sell 15% stake held in MCX for a consideration of approximately Rs 459 crore. From the aforesaid, the purchase price per share appears to be approximately Rs 664, which seems to be at a significant discount to the prevailing market price per share,” a letter from BSE’s listing compliance unit to dated July 21 to FTIL said.

On 20 July, Kotak Mahindra Bank bought a 15% stake in MCX from FTIL for Rs.459 crore ($76.1 million).

PLY: Hmmm, curious in some ways. I mean placing a large stake can often happen at a discount even in large markets like London, although at the same time it is slightly amusing that FTIL placed at a discount having originally demanded a premium. Equally, the stock was incredibly volatile at this period. Seeking a clarification is fair, but provided FTIL fill in the forms correctly, I would presume they can justify this position. At the same time, the likes of Liquidnet already offer Institutional Liquidity Pool access in the subcontinent so perhaps the regulator are trying to encourage more platform trading than bilateral deals?

Barclays Sued By California Client Over Dark Pool Trading
Karen Gullo – Bloomberg

Great Pacific Securities, a California-based institutional broker-dealer, said Barclays concealed that its practices put clients at a disadvantage and favored predatory traders lurking in the dark pool and skimming information about client trades, according to a complaint filed by Cotchett Pitre & McCarthy LLP.

EI reported on July 30th that Barclays was sued by a US investor in New York, following news June 26th that NY AG Eric Schneiderman announced fraud charges against Barclays in connection with the marketing and operation of its dark pool.

Goldman Set To Buy Message System As Alternative To Bloomberg
Lauren Tara Lacapra & Jennifer Saba – Reuters

Wall Street firms led by Goldman Sachs are close to buying a stake in chat and instant messaging startup Perzo Inc in pursuit of an alternative to a similar application from Bloomberg.

PLY: Perzo is a fascinating, free app which may do more damage to Bloomberg than any other competitor since Michael launched his eponymous system. Yes, free as opposed to a bundled 20,000 dollars a year terminal. Lots and lots of ramifications here – very interesting development indeed, particularly as Bloomberg had become synonymous with messaging.

Through Train Puts HKEx On Track To 10% Profit Growth (subscription)
Enoch Yiu – South China Morning Post

The stock through train may only leave the station in October, but it has already helped boost turnover and profitability at HKEx with expectations of 5% to 10% profit growth for H1. Credit Suisse analyst Arjan van Veen estimated net profit for the exchange at HK$2.44 billion (USD 314 mln), up 4.72% from a year earlier.

Betfair ‘Paid £60m Illegal Dividends’
Louise Armistead – Daily Telegraph

Chairman Gerald Corbett and the directors of Betfair face awkward questions having paid out as much as £60 million of “illegal” dividends over three years.

PLY: Hmmm, red faces all round and clearly a pretty damning indictment of accountants as well as the auditors (KPMG in this instance) who missed the fact that Betfair had insufficient reserves to pay dividends and indulge in share buybacks during 2011, 2012 and 2013 before it was spotted. An emergency capital decrease is now on the cards.

Eurex Consults On Cross-Border Clearing Rules (subscription)
Joe Parsons – FOW

Eurex has launched a consultation into the segregation models it provides to non-European clearing members in a bid to tackle cross-border issues. Eurex Clearing is considering new segregation models for its customers domiciled outside EU.

PLY: Encouraging to see EUREX keen to consult on the best client models possible.

Singapore Plans Curbs To Avoid Repeat Of Penny-Stock Rout
Pooja Thakur & Jonathan Burgos – Bloomberg

Singapore is bringing in tougher rules for its equity market to help restore investor confidence after a penny-stock slump erased $6.9 billion in market value from commodity companies over three days last October. Regulators will impose a minimum trading price of S$0.20 for mainboard shares because low-priced securities are more susceptible to excessive speculation and potential market manipulation. Meanwhile investors will have to lodge collateral worth 5% of trades and provide more information about short positions while reducing transaction lot size.

Credit Hub Disagreements Subside
Mike Kentz – IFR

Almost a year after a surprise CFTC dictum caused a minor scuffle between banks and swaps execution facilities working to implement Dodd-Frank reforms, market incumbents have largely accepted the need for the pre-trade credit checking facilities at the centre of the disagreement. The acceptance of the credit hubs, run by Traiana and MarkitSERV, represents the next major piece of market infrastructure to be embedded into the OTC swaps system as a result of Dodd-Frank while ICE talking about mortgages…

PLY: Once again the jumbo jet of post OTC markets have seen vital parts transitioned while in mid-flight.

Private Markets

GXG Battles For Smaller Company Listings
David Prosser – Forbes

PLY: A profile of Swedish based GXG which has been low profile but around for some years, and has recently linked to ProQuote which gives it more direct access to LSE members.

Bitcoin: ‘Digital Currency Regulation Would Curtail Innovation & Harm Businesses and Consumers’
Jerin Mathew – IBT

New York’s attempt to treat digital currencies such as bitcoin in the same manner as other financial instruments by fitting them into an existing legal framework would harm innovation and consumers’ independence, according to a digital currency expert. Jesse Powell, CEO of San Francisco-based bitcoin exchange Kraken, told IB Times UK that New York’s recent proposal to bring bitcoin businesses under regulation could harm consumers and businesses.

PLY: Alas having welcomed the NY AG proposals initially as a breath of fresh air, they are looking worse on full reading… An attempt to create a new regulatory category is fraught with risks and ultimately New York need to consider revisions to the proposals as they currently risk an overly prescriptive regime, especially for small business.

Previous discussions here and here.

Bitcoin Tax-Free Transactions Face Test At Top EU Court
Aoife White – Bloomberg

PLY: C-264/14 Skatteverket v David Hedqvist reaches the European Court of Justice as Sweden cannot reconcile VAT payment or exemption on Bitcoin. Rogier Vanhorick, a tax adviser at Deloitte in Rotterdam notes: “We’re constantly seeing a lot of these new concepts and the ECJ is having to give an explanation for this dinosaur-type of legislation.”

In essence the problem is this: apply VAT and have a short term effect deflating BTC usage for conventional business while others will use the Blockchain anyway and simply trade as they wish, thus potentially forcing the capital gains business underground too. Treating BTC as a proxy for cash and hence zero rated for VAT makes a lot of sense.

Bitcoin Booming In Romania Despite Govt Warnings
Carlo Caraluzzo – Cointelegraph

Romania, has exploded with Bitcoin startups and related activity during the last several months, with its first Bitcoin ATM in capital Bucharest and a BTC exchange in Oradea which claims to have more than 2,000 registered clients and more than 1.1 million Euros in transaction in only seven months of operation.

Horea Vuscan, a local politician who also owns the BTCEXchange said that they had already implemented some policies and that regulation was on the way as well. “We are now in talks with officials because I don’t know where we fit in, a bourse, bank, money transfer firm,” said Vuscan. There was no indication of a timetable for action, however.

Dividend News

Fidessa interim dividend 13.1p, payable on September 15th 2014 to shareholders on the register on Aug 22nd 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL continues to lose a lot of its recent gains, down 5% so far today as MCX is barely changed.

NSEL Scam: Real Estate, Farm Land Procured Using Investor Funds

In the latest charge sheet filed against the firm – Aastha Minmet India Pvt Ltd, accessed by PTI, the agency said it has gathered evidence which reveals “that the funds received from the settlement accounts with NSEL by the group were utilised for procurement of real estate, agricultural land, flats etc.”

NSEL Case: Police Seek Documentation From Investors
Sharleen D’souza – Business Standard

As part of its long probe into the NSEL scam, the city police’s economic offences wing (EOW) is verifying facts about some of the investors, the original complainants. It has asked some of them for copies of their Know Your Customer details, contract notes, book of accounts, warehouse receipts and so on.

PLY: This could cause consternation amongst many clients and indeed brokers as it appears good KYC practice was not widespread amongst the broker community…this may yet end with disgruntled investors remaining, well, disgruntled.

NSEL Scam: Investors Want Action Against Brokers, Defaulters
The Economic Times

A year after the scam at NSEL came to light, aggrieved investors who are yet to get their money back, today demanded action against top brokers of the crippled bourse, arrest of all top defaulters and a Special Court for faster recovery.

Slow Recovery Of NSEL Investors’ Money Main Concern: Ramesh Abhishek
Banikinkar Pattanayak – Financial Express

Spot contracts that weren’t exactly spot; commodity trading that was actually financial dealing — NSEL presented the first major scam in the commodity markets. A year on, as much as R5,334.81 crore (USD 875 mln) (95%) of the R5,600 crore (USD 918 mln) – settlement crisis is yet to be recovered from 22 defaulters.

In an interview with FE’s Banikinkar Pattanayak, FMC chairman Ramesh Abhishek, whose team unearthed the violations at NSEL, says the shifting from the consumer affairs ministry to finance ministry following the crisis has brought FMC in the mainstream of financial sector regulations and helped improve co-ordination with other regulators.

NSEL Scam: June Recovery Lowest
Dilip Kumar Jha – Business Standard

NSEL and the agencies investigating a scam in the commodities bourse seem to have failed to recover money from defaulters and distribute it among the beleaguered investors. The recovery has reached a nadir in June. The exchange recovered a negligible Rs 1.64 crore (USD 269k) in June, the lowest monthly recovery since the Rs 5,574-crore (USD 914 mln) scam became public in July 2013.

PLY: The multi-crore Rupee question is of course how much and when EOW will gain from the assets they have attached previously…

Future Uncertain – For The Young And The Old Alike
Suresh P Iyengar – The Hindu Business Line

PLY: Some genuinely heart rending tales of those who have been caught up in the NSEL scandal. The world must be caveat emptor but clearly more education is required (“guaranteed income” 101 and beyond) and punishment should not be spared on those who created the impression that there were safe instruments trading here.


Vienna Exchange Debuts Intraday Corporate Actions (subscription)
Giulia Lasagni – waters technology

Wiener Börse’s new Corporate Action Service offers data from more than 300 firms on an intraday basis, including those in six other markets covered by its central and eastern European parent group

PLY: A modest increment to help provide information through one aggregator.


ICE Said To Seek Mortgage Role Through Talks With Data Service
Matthew Leising, Jesse Hamilton & Jody Shenn – Bloomberg

ICE is in early stage talks to form a partnership with Mortgage Electronic Registration Systems Inc., which documents the ownership and resale of about half of U.S. home loans.

PLY: A possible toehold en route to creating instruments in the world of mortgage default, or at least the $9.4 trillion U.S. market. In some ways it’s a sense of deja vu one more time, as we come somewhat full circle for interest rate derivatives, back to the mortgage market where the incomparable Richard Sandor first created the foundations of modern derivatives.

Forward Trades In Commodity Markets To Begin This Month
Ashish Rukhaiyar – Livemint

India’s commodity markets will see the debut of forward contracts later this month, a move termed as an attempt to create a national agricultural market NCDEX will launch forward contracts based on two commodities—sugar and maize— by the third week of August after receiving a go-ahead from the commodity market regulator.

EI reported on July 22nd that NCDEX is likely to get FMC’s approval to launch forward contracts.

PLY: A sound move albeit one which may take a while to bed down after the NSEL affair.

Seychelles Exchange Launches Derivatives Markets
Evan Pickworth – BDLive

Seychelles Securities Exchange, Trop-X, which went live only a year ago, on Friday launched a derivatives market comprising 115 listed instruments.

The move, which is a challenge to South Africa’s status as a leading financial gateway for international investors, follows the launch of a number of other derivative markets across Africa this year. The first live trade on Zambia’s new derivatives market took place in April, while the Nairobi Stock Exchange initiated a new derivatives exchange in the East African region earlier in the year.

Previous discussions on the subject here.

PLY: Another exciting African development and we have at last an offshore competitor to JSE’s derivatives stranglehold via the upstart Trop-X (good luck!). Readers will recall that for many years Jignesh Shah was going to create a marvellous pan African marketplace from Mauritius although it has never quite come to fruition…

CSRC Approves Trade Of Ferroalloy Futures Contract

China’s securities watchdog has approved the listing of ferroalloy futures on the Zhengzhou Commodity Exchange (ZCE) in Henan Province with the exchange now to decide on a launch date.

Europe Faces Long Wait On FX Derivatives Definitions (subscription)
Anish Puaar – Financial News

European market participants will need to wait until 2017 for more clarity on how to define different types of currency trades after the European Commission said it would not be possible to solve the issue any earlier under current rules.

PLY: One for lovers of the absurd, apparently nobody knows what a spot forex trade is and as for a future…well that is anybody’s guess (or at least 28 different nations guess) apparently. However, the good news is that lots of new laws have been passed to regulate these things nobody is quite sure what they are…

Apparently the people who write such laws without a sound basis receive salaries and pensions – I believe they ought to be withheld until there is a proper pan-European definition as to what constitutes how they get their spot salary payments…


Osaka Exchange: Partial Revisions To Reference Price Of Dynamic Circuit Breaker For Index Futures Contracts

OSE will partially revise the reference price of the Dynamic Circuit Breaker (DCB) for index futures.

TSI Coking Coal Indices Form Basis Of New Singapore Exchange Derivatives – The Steel Index (TSI)-Based Coking Coal Futures & Swaps Launched Monday

SGX is utilizing The Steel Index (TSI)’s daily coking coal price indices published by Platts, a leading global provider of energy, metals and commodities information, as the settlement basis for its metallurgical coal futures and swaps contracts launched Monday.

EI reported on May 15th that Argus and IHS Inc, a leading global source of critical information and insight, have licensed the API 4 and API 5 coal indexes to SGX for the listing of derivative products.

Career Paths

Euronext issued a statement Friday evening announcing the abrupt immediate departure of Euronext Amsterdam CEO Cees Vermaas. Vermaas is widely expected to emerge as the new CEO of CME Europe exchange. Jos Dijsselhof, COO of Euronext, based in Amsterdam, will be acting CEO of Euronext Amsterdam to ensure the smooth running of the business, until such time as the replacement is announced.

Euronext press release here.

PLY: Frankly, an odd choice, albeit in keeping with a certain trend for CME to avoid finding people who would actually be the visionary thinkers their job templates request as criteria that then doesn’t seem to be applied to the actual search process. Apparently limited budgets in a time of cost cutting limited the candidate pool and clearly internal politics were a key factor in deciding to chose Cees Vermaas, a man clearly talented in internal politics (ex-Euronext) but a cash market man with limited derivatives focus. Cees is a good man, I cannot see he is the right person for this job – at least insofar as developing a dynamic derivatives franchise in a competitive new world and adding shareholder value is concerned.

I have discussed this more in the following Premium Post – Has CME Europe Chosen the Right Man?

Rainer Riess, who was MD of DB1 and chairman of the management board of the Frankfurt SE up until last year, has joined European exchange body FESE as interim Director General, filling the post while a broad search process is undertaken to find a permanent replacement to Judith Hardt whose resignation EI reported on May 14th – shortly before she joined the ‘dark side’ to lobby for Swiss banks Credit Suisse and UBS. .

FESE press release here.

PLY: An excellent hire in the interim for FESE, Rainer Riess brings the gravitas to the post that will help in the interregnum as a new DG is sought.

MCX has informed BSE that Mr. S. N. Ananthasubramanian, FMC nominated Independent Director (appointed in December 2013) has resigned from the Board of the Company vide his letter dated July 28, 2014. FMC has communicated that the Commission has accepted his resignation and that his position as FMC nominee independent director falls vacant till further nomination by the Commission.

NABARD has intimated that the directorship of Mr. P Satish as a nominee of NABARD on the Board of MCX be treated as ceased and, pending completion of formalities concerning the nomination, has recommended the name of Shri R. Amalorpavanathan, Chief GM as its next nominee on the Board of MCX.

Financial Calendar

This week

ICE Q2 2014 financial results
TMX Q2 Financial Results
HKEx Financial Results
MarketAxess $0.16 quarterly cash dividend payment

New announcement

Markit Q2 Financial Results – Wednesday August 13th 2014

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

Share Notes

Charles Schwab Director Roger O. Walther sold 25,041 shares Thursday, July 31st at an average price of $28.13 (bargain $704,403.33). He now owns 18,053 shares.

Breon Corcoran, Betfair CEO, has been awarded 116,667 shares on August 1st 2014 at a price of 0.00p. He now holds 258,333 shares.

Analyst Notes

CME “Equal Weight” Rating Restated By Barclays – $75.00 Price Objective
CME ““Neutral” Rating Reaffirmed By Zacks – $78.00 Price Target
TMX Upgraded By BMO Capital Markets To “Outperform”
Sandler O’Neill Lowered GFI Group From “Buy” To “Hold” – $4.55 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.


Crowdcube ‘Keeping A Close Eye’ On US Market
Storm Rannard – Insider Media

A US expansion could be on the horizon for Exeter-based crowdfunding platform Crowdcube, after co-founder Luke Lang revealed that the company was keeping “a close eye” on the market. Equity crowdfunding is not legalised in the US, but Lang told Insider that the country is “reshaping its rules and regulations”, although the process is taking longer than he had hoped.

Other Stories

Final Decision On Enquiry Against Ex-SEBI Chief This Week: CBI
Neeraj Chauhan – Times of India

Months after registering a controversial preliminary enquiry against former SEBI chief C B Bhave and then whole-time member K M Abraham, the CBI will take a final decision on the probe by the end of this week. Sources said the case could be closed as there was no concrete evidence to prove that Bhave and Abraham had irregularly granted licence to MCX-SX.

The agency top brass, however, was tightlipped on the outcome of the enquiry except CBI director Ranjit Sinha telling TOI, “I cannot tell you the outcome of the PE but we are going to finalize it in one week.”

ESMA: MiFID II Consultation Period Closed Friday At The Following Local Times: Midnight In Paris; -11P.M. In London – And 6P.M. In New York

IOSCO Surveys Effects Of Storage Warehouses On Price Formation In Commodity Derivatives Markets

IOSCO has given its Committee 7 on Commodity Derivatives a mandate to research the potential effects of storage infrastructure on the integrity of the price formation process of commodity derivatives in member jurisdictions.

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