December 08 2014

elb2

PLY: NZX does a mini Russell acquisition with the intention of keeping the fund manager…interesting. Elsewhere, Indian government (hoorah) is against banning any commodity products. State Street is easing its way out of the swaps clearing world as LCH ponders initial margin and capital levels. Frequent flyer status renewal season brings a rush of MOUs – surely no coincidence there? – while LME slightly changes its fee rises. Temasek buying in to Virtu pre-IPO is today’s big news on the deal front. Happy scrolling;

Public Markets

NZX To Spend $35m For Fund Manager SuperLife
New Zealand Herald

NZX will spend up to $35 million buying fund manager and KiwiSaver provider SuperLife as part of a plan to capture the growing Kiwisaver market by launching a series of new ETFs in the coming year.

The acquisition, which adds $1.27 billion of funds under management and 41,000 members, is expected to add to earnings over the 2015 financial year, and was prompted by the Wellington-based company’s plan to launch a series of domestic and international debt and equity ETF’s in the next 12 months. The SuperLife funds will be rolled into the NZX’s $400 million Smartshares unit, boosting the business in scale and liquidity ahead of the new ETF products being launched.

NZX press release here.

Temasek Buys Stake In Virtu
Reuters
Temasek To Buy 10% Of Virtu (subscription)
Bradley Hope – Wall Street Journal

PLY: Temasek is buying a portion of Silver Lake Partners’ stake, terms were not disclosed while Virtu although rumours suggest circa $200 million for a 10% stake. Virtu aims to go public after delaying previous plans last spring. Readers will recall that Temasek also bought a 10% stake in Markit pre-IPO. Note Temasek also owns a stake in Silver Lake. Silver Lake owns about 20% of Virtu as a result of a deal it made concerning HFT firm Madison Tyler in 2011.

TAIFEX, Eurex To Expand Cooperation
Focus Taiwan

Taiwan Futures Exchange (TAIFEX) is planning to take more products to list on the Eurex, including the Chinese yuan exchange rate futures contracts and ETF futures contracts.

EI reported on January 6th that Eurex Acquired a Stake of 5% In TAIFEX. EUREX already trades KOSPI futures on its platform for the European market.

LME Trims Fee Increase After Complaints
Eric Onstad – Reuters

LME on Friday trimmed a proposed average increase in transaction fees to 31% from 34% after complaints by members.

State Street Swaps Exit
Carla Main – Bloomberg

State Street is closing its swaps business after clients said new regulations steered them away from using the products. The bank will shutter its U.S. business for clearing swaps early next year and will shelve plans to start a similar operation in Europe.

PLY: Having been early to the SEF party with SwapEx, State Street seem to have found the contiguity tough – aka early optimism on mass bundling of buy side collateral has led to a wave of apathy as the side said “am I bothered?” in response to contradictory rule approaches and regulators behaving with the maturity of middle manager in Brazilian soap operas. I always struggled to see how State could (like BNY Mellon) convert equity collateral to overlap with swap collateral in the first stage. However, State has not wasted time sticking to a losing proposition which ought to be an object lesson to other intermediaries who continue to flog horses long since afflicted by rigor mortis.

It would not surprise me to see Q1 marked by an exit from various platform arenas, following on from Lava closing but presumably State Street SwapEx is now living on borrowed time?

LCH.Clearnet Welcomes CCP Reform
Asset Servicing Times

Initial margin must remain the most important defence for CCPs, while stress-testing and transparency of results is the key to increasing confidence in them, according to a whitepaper from LCH.Clearnet.

PLY: The issue here remains – as noted several times recently: clearing members have lost their mojo for managing their own credit risk through initial margin and hence want the CCP to do their job for them when it comes to what LCH correctly notes as that vital line of first defence.

LCH Calls For Restraint Over CCP Skin In Game (subscription)
FOW magazine

LCH.Clearnet said the current provisions for clearinghouses putting “skin-in-the-game” (SIG) under EMIR are appropriate. Under EMIR, clearinghouses like LCH must provide a default provision (SIG) of 25% of their minimum capital requirement.

WSE To Become Exchange Of First Choice
Fin Channel

Warsaw SE wants to be the exchange of first choice for investors and issuers in Central and Eastern Europe, including Georgia, according to the new strategy of WSE Capital Group. WSE’s ambition is to grow revenue by 7% CAGR by 2020. The Exchange Management Board expects EBITDA to double and the cost/income ratio to fall below 0.50.

PLY: Proof, pudding, eating is clearly key here and now the talk is stopping, we look forward to demonstrable results with stability of management.

That said, a CAGR of 7% I find a trifle disappointing – after all the mature cash-centric LSE drove a CAGR of 16% from 1984-2005 and the GPW sphere of influence (even in Poland alone) to me oozes opportunity.

N.B. I remain significantly invested in Poland privately across multiple ventures.

All I (Don’t) Want For Christmas Is Mifid II (subscription)
Tim Cave – Financial News

If you thought the summer timing of the first industry consultation into a revised version of Mifid was bad, wait until you hear the expected schedule for the second.

PLY: I still don’t know why anybody bothered with MIFID II, there is nothing there that really makes a significant improvement to markets that I can see and a lot which is simply toxic. MIFID made sense, MIFID II is the classic sequel driven by hubris to become a box office flop.

The Trade-At Provision, Says TABB Group’s Larry Tabb, Will Benefit Few, Harm Many
MondoVisione

According to TABB Group CEO Larry Tabb, the Trade-At provision in the SEC’s third nickel pilot scenario will increase trading costs, increase order routing complexity, reduce competition and reduce accessible liquidity.

FAO: Latest comments ref. to the “trade-at” rule here, here and here.

PLY: The American dog’s dinner of market infrastructure needs wholesale change – the problem is the endless myriad of vested interests who want somebody else to have their business affected. Through destabilisation, “trade at” may at least help get momentum going to carve the system apart.

Private Markets

Billionaire Widjaja Family To Cut Stake In Exchange
Chanyaporn Chanjaroen – Bloomberg

The Widjaja family plans to reduce its controlling (50-60%) stake in Indonesia’s largest derivatives exchange over the next three years after recovering losses from the bourse, said CEO Megain Widjaja.

DGCX Signs MoU With China Financial Futures Exchange
MondoVisione

DGCX and China Financial Futures Exchange (CFFEX) announced the first MoU that CFFEX has signed with a derivatives exchange in the Middle East.

Peru Capital-Gain Tax Suffocates Stock Market
John Quigley – Bloomberg

Lima SE urged Peru to eliminate a 5% capital-gain tax on equities, saying it has deterred investors and contributed to a drop in trading volume over the past five years. The country’s weighting in global portfolios has fallen 40% since 2010, and the tax has helped Chile become a regional financial center instead of Peru.

Angola SE Starts Public Debt Trading
Macau Hub

Angola Debt and Securities Exchange (Bodiva) started operating last week with public debt and registration of operations outside the financial exchange.

Bitcoin Exchange Igot Expands To Over 40 Countries
Jon Southurst – CoinDesk

Australia-based igot has announced the next phase of its bid to be the “fastest-growing bitcoin exchange in the world”, opening for business in over 40 countries including the EU and parts of the Middle East and Africa.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX are down 1%, FTIL is up 1%, resolution is neither here nor there.

Technology

Opening Cross: Location, Location, Consolidation & Diversification (subscription)
Max Bowie – Waters Technology

PLY: As always a deft wander through the market data landscape by Max Bowie.

Products

India – FM’s ‘No Ban On Commodity Futures’ Brings Comex Relief
Dilip Kumar Jha – Business Standard

Commodity exchanges expressed relief at Union Finance Minister Arun Jaitley saying no ban was being considered on forward and futures trading in any commodity.

PLY: A clear financial markets indication the Modi government is not the old manipulative Congress regime: prices have moved against some producers and the Finance Minister has refused requests for a trading ban. It’s a small but significant step away from the juvenilia of Indian market politics.

China’s Zhengzhou Exchange To Start Night Trading In Cotton, Sugar, Rapemeal
Dominique Patton – Reuters

The new trading hours, from 9 pm until 11.30 pm, will begin on Dec. 12.

MOEX To Double FX Market Tick Size
MondoVisione

MOEX’s FX Market Committee recommended increasing the price tick for USD/RUB and EUR/RUB spot instruments to RUB 0.001 from the current RUB 0.0005.

Forex Futures Contracts Set To Launch In China In 2015
Liang Shih-huang – Want China Times

China is expected to take another step as part of its financial reforms by launching foreign exchange futures contracts in 2015, after regulators recently issued a local brokerage firm the first license to trade in the forex market.

Indexes

EU Council Backs Down On Overseas Benchmarks (subscription)
Tim Cave – Financial News

A EU proposal that would prohibit banks and fund managers in Europe using overseas indexes such as the S&P500 and the Nikkei 225 is being watered down by the European Council.

PLY: An utterly misguided edict which ought to be simply wiped out, not watered down.

Financial Calendar

This week

Record date CME $0.47 Q4 dividend
BGC Partners $0.12 quarterly dividend payment
Record date NASDAQ OMX $0.15 quarterly dividend
Interactive Brokers Q3 $0.10 dividend payment

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

Share Notes

ITG Director James P. Selway III sold 1,900 shares Thursday, December 4th at an average price of $20.23 (bargain $38,437.00). He now owns 82,919 shares.

Analyst Notes

JPMorgan Chase Restated Their “Neutral” Rating On LSE – GBX 2,330 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.

Crowdfunding

Equity Crowdfunding Thrives Despite High Risks (subscription)
Judith Evans – Financial Times

Seven months ago, the UK’s financial watchdog gave the following stark warning to anyone considering investing in equity crowdfunding: “It is very likely that you will lose all your money.” If the FCA meant to put people off, it did not work: investors have since sunk another £40m in the fledgling sector, more than in the previous two years of its existence.

PLY: As clear a demonstration as has ever been needed: the public have moved beyond the nanny state attitude of the UK regulators whose ‘cry wolf and forbid’ approach was never sustainable in a digital world. FCA needs to consider a much much more delicate line than simply being the “abominable no men” when it comes to straitjacketing retail products. We need vastly more financial education while the mantra “oh it’s complicated…so not for you, little person” remains a misguided one from industry and regulators alike delivering needless complexity to regulation. Of course many will lose money in crowdfunding but then the history of investment was forever thus, regulated and unregulated alike.

UK Tech Body To Lobby SEBI For Equity-Based Crowdfunding
Priyanka Pani – The Hindu Business Line

TechHub will directly lobby the Indian government and market regulator SEBI to permit equity crowdfunding and boost the startup ecosystem.

PLY: Good luck to this welcome initiative.

Other stories

Sprecher: Following Market Trends
Daniel P. Collins – Futures Magazine

Futures magazine named ICE Chairman & CEO Jeff Sprecher it first annual Person of the Year.

PLY: Plaudits to Jeff Sprecher on this award (albeit with that hideous titular PC neutering). It will be interesting to see if, given current ICE momentum, Futures Magazine start rotating this as an advertising award, or will actually give it to the person who deserves it on merit. I rarely cover other awards for precisely this implicit conflict of interest between ad revenue and award winners but here there is a brief interview with Jeff and besides he is Man of the Year – in the futures industry, he has been repeatedly so.

HKEx’s Charles Li On LME Fees Increase, Regulatory Changes (subscription)
Metal Bulletin

HKEx said the increase in LME broker fees was part of the commercialisation process and a small part of the return on investment that the bourse gets for buying the LME for $2.2 billion.

“The returns are coming in but [there have] obviously [been] two years of pretty small returns, compared with the big amounts of money that we gave the members,” CEO Charles Li told Metal Bulletin in an interview. He elaborated that the bourse had, since the LME buyout, invested in a new clearing house (LMEClear), hired many new people, insourced IT and was now seeing the commercialisation of the operation beginning to take effect. The broker fee increases that are being discussed are part of this commercialisation process, he said. “The LME would have ended up in somebody’s hands. It would not have survived independently,” Li said.

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