December 06 2013

elb2SEFs, swaps, NDFs, TRs, energy markets, metals (especially LME), FTT, Sprecher & Loeffler profiled, what future for ParisBourse? …that’s just for starters in a bumper day of intriguing snippets of news, all collated in one place with a few judicious comments of course, happy scrolling:

…and a Happy St Nicholas day to one and all. You may recall he liberally gave away assets for nothing and hence is celebrated as the patron saint of Quantitative Easing…

Public Markets

CME Eyes Q1 2014 For Delayed Launch Of London Exchange
Reuters

Asked whether the launch could happen in the first quarter of next year, CEO Gill said: “Very possibly”.

PLY: No major acquisitions in the pipeline, nor are there any talks with TOCOM to create LNG futures (which contradicts the suggestion of the Tokyo Exchange earlier in the week). I am not sure anybody really knows how/when they can end the trans-Atlantic Central Bank stand-off which is delaying the launch of the forex futures-centric CME Europe:

“As soon as we tie up some technical details with the Bank of England, we will launch that exchange,” CME CEO Phupinder Gill told Reuters.

EU Executive Document: FTT Plan Legal
Reuters

PLY: With so many bureaucrats, the EU can simultaneously generate multiple conflicting opinions. e.g. The Commission’s own economists steadfastly maintain FTT is hugely detrimental to Europe’s economy but that doesn’t fit the narrative of the interventionist value destroyers in Brussels…

The preposterous demand of 11 nations to create a tax against the wishes of the other 17 remains alive but any proposal will face implementation problems especially as the Commission and Parliament are about to change.

The ICE Man Cometh (subscription)
Fortune

The excellent Carol Loomis profiles Jeff Sprecher and Kelly Loeffler.

The Future Of The Paris Bourse
The Economist

PLY: Despite the excellent work of Paris Europlace, consistently the most coherent of all European financial centre groups, nerves are frayed as “Ownership of the much-bought Paris Bourse is once again up for grabs.”

(On a slightly pedantic point: ParisBourse was only bought once, by NYSE as part of Euronext which was a merger driven by Jean-Francois Theodore to de facto acquire Amsterdam and Brussels – but I agree with all that ‘merger of equals’ drivel everybody spouted during ‘mergermania,’ it was confusing!)

The problem remains that France’s ongoing romance with anti-capitalism has left the wealth creators largely disillusioned, or living in Belgium, South Kensington, Dubai (…anywhere that is not France’s dismal socialist third way shangri-la). An interesting and well-considered article pertinent to both exchanges and financial centres.

LME’s Bared Teeth Warn Warehouses Off Steep Rent Rises
Reuters

LME has showed its teeth to guard industrial users of materials like aluminium against steep rises in charges by owners of warehouses in its global storage network.

Warehousers say this tough new stance is scary enough to work.

PLY: Good. Monopoly rents demanded by, particularly financial interests in the field damage free markets.

LME Faces Minefield In Releasing Data To Boost Transparency
Reuters

LME faces a tough job as it gears up to provide more data about long and short positions, including delivering what many investors crave – information on flows of speculative money that move markets.

LME has launched consultations after last month promising to boost transparency at the same time it announced new proposals to cut backlogs at warehouses.

PLY: Just how much the LME ought to hitch up its skirt is always going to be a tricky business for an exchange which has prided itself for decades on a remarkable hybrid of transparent-opacity.

LME Mulling Remote Membership (subscription)
Metal Bulletin

LME is looking at expanding its presence in Asia and could eventually allow remote membership, perhaps under a new, Category 8 membership tier which could trade electronically without holding clearing membership.

CEO Garry Jones: “It is not specifically for China but does have [that] implication because in China you can’t just set up to trade externally unless you have certain clearances and if you are a foreigner then you need to set have a QFII [qualified foreign institutional investor] quota or WOFE [wholly foreign-owned enterprise] structure,” he said.

LME Wants Aluminum Warehousing Suits Heard In New York
Reuters

LME asked a panel of U.S. judges on Thursday to assign a federal court in Manhattan to handle a series of antitrust lawsuits that allege the world’s largest metal exchange, two of Wall Street’s biggest banks and big commodity merchants conspired to raise the price of aluminum.

Goldman, JPMorgan and HKEx have rejected the claims and said they would contest them vigorously.

A Last-Minute Push To Rein In Wall Street
Businessweek

Gary Gensler is sending a message to Wall Street: I am not leaving Washington quietly.

In his final weeks as chairman of the CFTC, Gensler has had the agency issue more than a dozen advisory opinions that close loopholes or tighten rules that govern the largest financial firms and swaps traders.

The opinions, which were not voted on by other commissioners, covered such issues as regulation of overseas derivatives trades and competition in the swaps market.

PLY: Gary Gensler is in danger of leaving office and looking as petulant as Brooksley Born who seems to have never quite got over her term ending while the industry has never quite managed to feel more relieved. Difference was Bill Clinton could find in Bill Rainer somebody who could build consensus. That is now the task which falls to Tim Massad. However, given that the Obama regime negotiates with all the subtlety of Attila the Hun without weapons, it may be a challenge to reduce the heavily Balkanised atmosphere in US political-regulatory circles…

SEFs Battle With Confirmations After CFTC Relief Expiry (subscription)
Risk.net

A second no-action relief period that exempted SEFs from issuing confirmations expired on November 29, leaving forex traders unsure whether SEFs can handle the requirement

SEFs could struggle to offer trading of fx options and non-deliverable forwards (NDFs) following the expiry of a crucial exemption from confirmation requirements on November 29, with no further relief issued by CFTC, either before or after the deadline.

Prior to the advent of SEFs, only the counterparties to a trade had been responsible for issuing trade confirmations but CFTC passed that responsibility to SEFs. After the expiry of an initial one-month extension issued when SEFs first began operating on October 2, the CFTC issued a second extension for products in the fx asset class on November 1, in recognition of the fact SEFs might need more time to meet onerous reporting and confirmation requirements.

Officials at the global forex division (GFXD) of the Global Financial Markets Association indicated at the time that there was a lack of clarity over exactly what the CFTC required as part of the confirmation process, warning that it could be difficult to build the necessary infrastructure within the month-long extension period. While SEFs are now legally required to provide confirmations, some participants have cast doubt on their ability to do so.

PLY: A worrying hole at the heart of the whole re-regulation process… Perhaps most worryingly, it is one of many despite the hyperactive hole-plugging apparently being practised by Gary Gensler as the clock ticks down to his departure from office…

JSE Targets January Launch Date For First Coal Futures Exchange (Video)
miningweekly.com

Johannesburg SE (JSE) is targeting January 20 as the launch date for the country’s first coal futures market.

South Africa produces 255-million tons of coal a year and consumes three quarters of it domestically.

Polish Gas Exchange: New Products Will Fuel Growth
Reuters

Poland’s power exchange and energy regulator sees an increased number of foreign players entering the local gas trade, as the country’s attempts to diversify supplies and launch new financial products promise a boost in liquidity.

Poland started the gas exchange at the end of 2012 to comply with EU requirements for the country to liberalise its 14 billion cubic metre gas market dominated by state-controlled monopoly PGNiG.

Since December 2012, when the exchange saw just one transaction, the energy market regulator URE has granted 15 foreign gas trade licences, allowing entry to the market, and is now working on another eight.

New gas links and a planned liquefied natural gas terminal on the country’s Baltic coast should increase volumes to make trading more attractive in eastern Europe’s biggest economy, said Ireneusz Lazor, the head of Poland’s power exchange POLPX.

PLY: POLPX is just one of many fascinating developments in in energy trading in the New Europe. I will be discussing the South Stream pipeline in my next column for RT Op-Edge.

BM&FBovespa Loses Appeal In Dispute Over Bovespa Acquisition
Reuters

BM&FBovespa SA, has lost an appeal against a fine imposed by Brazilian authorities over tax credits resulting from the merger that created the exchange.

BM&FBovespa said in a statement filed with regulators that it is considering its legal options going forward.

FCA Speaks Out On February Reporting Deadline (subscription)
Futures & Options Intelligence

UK regulator FCA has said firms that believe they will struggle to meet the trade reporting deadline must show they have “considered all possible routes to compliance.”

PLY: Right now the crazed rush of the impending termination of terms at CFTC and EC mean that firms are in danger of being buried in a welter of compliance which, actually is being exacerbated by the fact that the likes of ESMA have failed to get their requested budgetary increase. Something has to give as otherwise regulation is going to take a huge credibility hit due to the desire for more regulations which simply cannot be enacted or overseen… It’s always darkest before the dawn as the cliche goes but the current budgetary dire straits mean that de facto a deregulatory phase will soon be upon markets, regardless of any political desires to control financial markets…

Private Markets

Luxembourg SE Unlikely To Change GDR Listing Rules
The Hindu Business Line

Luxembourg SE is unlikely to change rules for listing GDRs of unlisted Indian companies even though it currently provides a platform for a large number of GDRs of listed Indian entities.

Central Banks Warn Of Bitcoin Risks (subscription)
Wall Street Journal

China, France Issue Stark Reports; Beijing Bars Financial Institutions From Offering Related Services

Bitcoin Gets Slammed By China As BofA Touts Its Potential
Reuters

Following massive interest that has seen Bitcoin’s value increase more than 7,000 percent since the beginning of the year, China’s central bank has forbidden financial companies from processing Bitcoin-related transactions. Chinese regulators are reportedly considering rules that would govern the behavior of online Bitcoin exchanges.

PLY: In some ways the Chinese Central Bank has been the most pragmatic here and that has driven the price down overnight as markets get concerned amidst early adopter bubble froth. However BTC infrastructure in China will be sensibly regulated by the looks of it. Beijing also realises that the last people who should ever be let loose on risky assets are mediocre bankers – in other words they don’t want their central bank regulatory turf endangered but others can use BTC (a sensible approach in the early days of the waning influence of banks). At the same time other Central Banks and the increasingly messianic Commissioner Barnier view it as their divine right to make decisions for others so view disintermediation of discredited political entities as endangering their influence/superannuation. They’re right of course. Their position is precarious but that won’t stop cryptocurrency ultimately wiping away the archaic central banking monopoly.

Special Section: FTI, NSEL, India at the Crossroads

MCX and FTIL are flat as the market digests just what may have been said between Jignesh Shah and the Mumbai fraud squad yesterday.

Spin-Cot Textiles Admits Liability Of Rs 34.29 Cr To NSEL
Moneycontrol

Admitting that it owes Rs 34.29 crore (USD 5.56 mln) to the scam-hit NSEL, Spin-Cot Textiles Ltd has given an undertaking to the Bombay High Court that it would deposit Rs 50 lakh (USD 81.1 k) every month in the court till the arbitration proceedings are over.

PLY: On face value: by the time the Indian general election after next takes place they may be close to repayment…

Committed To Recovering Money From Defaulters, Says Jignesh Shah
The Indian Express
Shah Visits EOW Officials
The Indian Express

Two days after Mumbai Police attached his properties, Jignesh Shah, director of the beleaguered NSEL, today told investigators that he was making “relentless” efforts to recover money from defaulters.

According to EOW officials, Shah’s meeting with senior EOW officials went on till late evening.

“Shah showed up before me to brief about the efforts being made by him to recover the money from the defaulters. We did not summon him and he himself turned up before us today,” said Rajvardhan Sinha, Additional Police Commissioner with Economic Offences Wing of Mumbai police.

When asked about his visit, Shah said, “I am committed to the process of recovery. Let the law take its course.”

PLY: I note that Mr Shah has had his own assets confiscated in recent days as part of this commitment to repay the NSEL creditors.

Worried Brokers Want Govt To Shield FT ODIN Software Code
The Economic Times

The turbulence in FTIL has sparked new fears among brokers in financial markets. It concerns the fate of ODIN — the front-end software that FT provides to over 70% of market participants.

Stock broker lobbies have decided to ask the government and regulatory authorities to seek custody of the source code — loosely, the master code — of ODIN. FT, unlike any other business group in India, has not only promoted exchanges but is the leading technology provider to intermediaries as well as bourses.

PLY: Confiscating the code appears draconian. However ensuring it can be ring-fenced as a going concern (as it is a highly lucrative centrepiece of FT’s cash-flow) makes sense.

Technology

CNSX Successfully Completes “Project One”
digitaljournal.com

CNSX Markets Inc., operator of the Canadian National Stock Exchange and Pure Trading, has completed its “Project One” initiative. CNSX-listed symbols and stocks listed on other Canadian exchanges are now being traded on a single system.

Securities Trade Group Urges Hardware Revamp After Nasdaq August Halt
4-traders

Trade association SIFMA is calling for a revamp of the system governing the hardware behind the trading halt in Nasdaq stocks in August, a move that would likely reduce the control the two leading U.S. stock exchange operators have over that hardware.

SIFMA recommended a number of sweeping changes to the “securities information processors,” or SIPs, which spit out the best quotations and last sale price of stocks traded in the U.S. stock market.

SIFMA said neither the association nor its members had reviewed any detailed proposal or analysis to make the SIPs more resilient after one of them got clogged with quotes on August 22, halting Nasdaq trading for three hours.

In a letter to SEC, SIFMA said broker-dealers and asset managers should be included in the SEC’s September order for the U.S. stock and options exchanges to draw up plans to buttress the SIPs.

PLY: A dangerous move. Clearly Reg NMS is a dog’s dinner and SIP is not fit for purpose as it stands but this strikes me as another back door move by the sell side to regain greater control of exchanges. That will not help markets or investors.

Bloomberg Vault Adopted By Jefferies For Information Governance
MondoVisione

Bloomberg’s cloud-based archiving, e-discovery, and compliance service, Bloomberg Vault, has been adopted by global investment bank Jefferies for enterprise information management.

SIX Financial Information Joins NYSE’s SFTI Network As A Content Service Provider
MondoVisione

SIX Financial Information has reached an agreement to become a Content Service Provider (CSP) on NYSE’ Secure Financial Transaction Infrastructure® (SFTI®) network. The global SFTI network provides the reach and scalability to dramatically extend global distribution capabilities to SIX clients.

Products

Eris Plans Mid-2014 European Swap Future (subscription)
Futures and Options Intelligence

Eris Exchange has said it plans to introduce a European swaps futures contract by mid-2014, becoming the first US-based exchange to commit to this contract.

PLY: Can Eris lead the pack in what is going to be a fascinating battle amongst legacy providers, relatively new bourses like Eris and start-ups like GMEX?

Indexes

STOXX Launches iSTOXX Global ESG Select 100 Index
MondoVisione

STOXX Limited, a leading provider of innovative, tradable and global index concepts, today introduced the iSTOXX Global ESG Select 100 Index. The new index screens the components of the STOXX Global ESG Leaders Index for high dividend paying companies which also have low volatility, thus creating a hybrid portfolio of ESG, maximum dividend and low volatility strategies.

The new index is designed to act as an underlying to ETFs and other investable products, such as structured products.

Career Paths

Frankfurt Stock Exchange Exchange Council results have been announced. The following candidates were elected as the individual representatives:

Credit institutions:
Lars Hille, Member of the Board, DZ Bank AG Deutsche Zentral-Genossenschaftsbank
Rainer Krick, Member of the Board, Landesbank Hessen-Thüringen Girozentrale
Nico Baader, Member of the Board of Managing Directors, Baader Bank AG
Dr Stephan Leithner, Member of the Management Board, Deutsche Bank AG
Dr Lutz R. Raettig, Member of the Board, Morgan Stanley Bank International Ltd., German Branch
Dr Johannes J. Reich, Personally Liable Partner, B. Metzler seel. Sohn & Co. KGaA
Michael Reuther, Member of the Board of Managing Directors, Commerzbank AG
Carola Gräfin von Schmettow, Member of the Management Board, HSBC Trinkaus & Burkhardt AG

Investment companies:
Thomas Grünewald, Managing Director, BNY Mellon Service Kapitalanlage-Gesellschaft mbH

Financial services institutions:
Daniel Förtsch, Managing Director, Walter Ludwig Wertpapierhandels GmbH
Michael Wilhelm, Chairman of the Executive Board, N.M.F. AG

Specialists:
Bernd Gegenheimer, Member of the Management Board, ICF Kursmakler AG
Kai Jordan, Member of the Management Board, Wolfgang Steubing AG

Insurance companies:
Dr Immo Querner, Board Member, Talanx AG

Issuers:
Dr Werner Brandt, Member of the Executive Board, SAP AG
Dr Matthias Zieschang, Executive Board Member, Fraport AG – Frankfurt Airport Services Worldwide

The Exchange Council will convene for its inaugural meeting at the end of January and elect the chairman, deputy chairman and investor representatives.

Financial Calendar

Today

Record date LSEG interim dividend of 10.1 pence
TMX $0.40 dividend payment

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

Share Notes

Interactive Brokers Group SVP Milan Galik sold another 2,000 shares Tuesday, December 3rd at an average price of $24.53 (bargain $49,060.00). He now owns 741,604 shares. Mr Galik’s regular sales are chronicled on this specific page.

GFI Group major shareholder Jersey Partners Inc. sold 100,000 shares Wednesday, December 4th at an average price of $3.68 (bargain $368,000.00). The insider now owns 46,620,128 shares.

Analyst Notes

  • NASDAQ OMX “Neutral” Rating Restated By Zacks – $42.00 Price Target
  • J.P. Morgan Reiterated An “Overweight” Rating On ICE And Raised Price Target From $235.00 To $242.00
  • ICAP “Underperform” Rating Reaffirmed At Credit Suisse – GBX 350 Target Price
  • Jefferies Group Reissued Their “Buy” Rating On Betfair – GBX 1,175 Price Objective
  • Deutsche Bank Hoisted Their Target Price On Betfair From GBX 945 To GBX 1,060 – “Hold” Rating

Value Investor: ASX Won’t Float Your Boat
businessspectator.com.au

We expect a stronger fiscal 2014 for the ASX despite declining market share in the equity markets business due to new competitor Chi-X, underpinned by a strong equity market and increased initial public offerings (IPO) and capital raising activity.

But even with this positive earnings momentum, the ASX is not an investment consideration as it is already trading 50 per cent above our fiscal 2014 valuation of $24.97.

PLY: Eventually budget cutting mania without a coherent growth strategy while clinging to a Dickensian concept of divine right monopoly harms the investment chances for any business…

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.

Other stories

Millions Of Hidden Share Trades To Be Revealed
MondoVisione

Millions of previously hidden US stock trades will be revealed for the first time on Monday December 9 thanks to research from a team of academics.

Previously odd lots, (trades of less than 100 shares), have not been revealed on the publicly available ‘consolidated tape’, with only big investment banks and HFT players paying to see them.

PLY: In an era of HFT this could be very interesting to look at.

Opening Shot In Battle To End Share Deal Tax
thisismoney.co.uk

Tax cuts for share investors may not seem particularly wise at a time when the Opposition is constantly whingeing about falling living standards and income tax relief for millionaires. But in much the same way as the cut in the highest rate of income tax from 50 per cent to 45 per cent has encouraged an influx of professionals from France to the UK –so it is possible that easing share stamp duties could do the same for investors.

There is increasing evidence that the Government could be heading down this road.

Gradually it is chipping away at the range of assets that are covered by stamp duty: from next April the Government proposes to remove stamp duty from ETFs.

PLY: Stamp duties kill commerce. How odd though that the Germans seem to be reducing their version of the continental mania for stamps on everything while advocating that most destructive duty of all the FTT? Also killing stamp duty now would further help undermine FTT.

2014 CBOE Risk Management Conference
CBOE

CBOE will host the 30th Annual CBOE Risk Management Conference (RMC), from Monday, March 17 through Wednesday, March 19, 2014, at the Hyatt Regency Coconut Point Resort and Spa in Bonita Springs, Florida.

PLY: …Which comes soon after Boca Raton FIA. Never been to this event so cannot comment on it. Not sure I will be in the rat’s mouth either next year.

Volcker Rule To Require CEOs Guarantee Compliance (subscription)
Wall Street Journal

The Volcker rule will require that bank executives guarantee their firms are in compliance with the rule, something Wall Street had lobbied against.

PLY: In some ways understandable, in other ways tricky to enforce in realms with hundreds or thousands of dealers but at the same time, it is clear regulators want to pin down just where the leveraged forward backward hyper-CDO, er, buck, stops.

Deutsche Bank Shrinks Commodities Business (subscription)
Financial News

Deutsche Bank is to downsize its commodities business, as lacklustre revenues and tighter regulatory scrutiny drive financial institutions out of the sector.

PLY: No bad thing to lose banks from a business that is not, well, banking…

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