December 12 2013

elb2

A big day with all manner of events arising from FTT debates, US regulators concerned about their Volcker status, various IT sales labelled as “partnership” while TrueEx and TriOptima have been rationalising risk once more. The ICE-LIFFE board is complete. NIBA meets CME and the EU emerges prudential about ‘shadow banking.’

All this and much more, there’s quite a bit of comment today, happy scrolling:

Public Markets

LSE Teams Up With OTC Risk Start-Up (subscription)
Financial News

PLY: If you have ‘square peg’ OTC products which won’t fit through the ‘round hole’ of CCP then you need NetOTC to, well, ‘net’ positions. Now LSE has sold hosting (via UnaVista) to a business which was founded by former Barclays executives. It boasts a high profile board, chaired by Bob Wigley and includes former LCH.Clearnet CEO Roger Liddell and the incomparable Robert Barnes, also CEO of LSE platform Turquoise.

European FTT Suffers Backlash (subscription)
Financial Times

PLY: Seconds Out round two. The FTT is back off the canvas after a contested TKO and is fighting back as the Commission remains desperate to secure a cash supply of its own so it can somewhat disintermediate client governments who can often be pernickety and demand ludicrous high-falluting concepts like accountability (which sit badly with an EU where the accounts haven’t had an auditor sign off for more than a decade).

Apparently even Lithuania senses the crass stupidity of FTT and has launched a push-back (as mentioned previously; without a stake through its heart the FTT will keep rising like the legislative equivalent of a zombie apocalypse).

The Lithuanian presidency proposes a compromise which resembles a poisoned chalice. Repo and collateral operations would be excluded (a win for the ECB) but would include anything that is traded pre netting – aka all market making & HFT, hence this compromise makes the Volcker rule look libera! Sovereign/public debt would be excluded presumably to try to help sucker investors into thinking this makes bankrupt government paper more attractive.

The paper avoids the profoundly worrying extraterritorial issues while the core of the FTT seems to be accepted here which is clearly not acceptable. Excluding repo at least saves the banking system from instant collapse but ensuring a long slow demise of European investment is hardly a substantive improvement.

EU Executive Cautious On Shadow Banking Controls
Reuters

The EU’s executive has ruled out hasty curbs on “shadow banking”, or simplistic trading restrictions on mainstream lenders, in case it ends up crimping finance for the economy.

Testimony to Britain’s parliament from Patrick Pearson, a senior official at the bloc’s European Commission, signaled the latest softening in tone among regulators, fearful of unintended consequences of new rules for the flow of credit to companies.

Shadow banking refers to the opaque $70 trillion sector that includes money market funds, securities lending, repurchase agreements and other forms of short-term borrowing and lending outside the main banks, which helps grease the economy.

Regulators worry that as mainstream lenders are more tightly regulated, risky activities will shift to the shadow banking sector. They are therefore looking at what steps should be taken to contain risks.

PLY: Good news: A wise move by the EU as the future is in what is unfortunately (like “dark pools”) termed the “shadow banking” system when in fact the future of financing lies not with legacy bankers but with new systems for crowd/peer and social lending as well as other more traditional quasi-banking functions.

NIBA Reports On Fees Meeting With CME
futuresmag.com

PLY: A brief report worth reading from the (US) National Introducing Brokers Association (NIBA) which lays out the bald facts (and explicit dangers to the industry) from the CME’s rather avaricious, utterly ill-considered and poorly promoted ‘reform’ (aka quasi-reckless endangerment) of many worthwhile participants in the ETD food chain. Also, the idea that CME after all this ‘integration’ is charging multiple data fees across platforms they have acquired over time, is, frankly, a bit of a cheek (to put it mildly). As I mentioned the other day this is not the CME’s finest hour as a public company and the proposal needs wholesale reworking.

Private Markets

Bombay IPO Size Likely Between Rs 400 Cr – 1,000 Cr (USD 65-162 Mln)
The Financial Express

PLY: In other words, the current picture of the BSE IPO is in fact rather lacking in transparency as the exchange endeavours to work through a rather labyrinthine matrix of complex, if not outright contradictory regulatory positions.

ECC And NOREXECO To Cooperate In The Commodity Sector
MondoVisione

European Commodity Clearing (ECC) and the Norwegian NOREXECO AS have agreed to cooperate in the field of commodity trading and settlement.

NOREXECO with registered offices in Kongsvinger was established in 2012 and intends to launch an organised and regulated market for derivatives on products from the forestry and paper sector.

PLY: Interesting, as I recall OMLX was the first to offer a paper future some years ago but doubtless an eagle eyed reader will correct me if I am wrong!

TrueEX Executes First Swaps Compression Trades
ifre.com

Start-up electronic swaps platform trueEX executed its first terminations cycle for IRS earlier today in a sign that value-added services such as swaps compression are set to become an increasingly important part of the tool kit.

The SEF completed the initial transactions on its Portfolio Terminations and Compactions platform with two buyside and two sellside firms; AllianceBernstein, JP Morgan, MKP Capital and Societe Generale.

PLY: Kudos to TrueEx: the more compression we have the more risk is netted and the more capital is freed up, a perfect virtuous circle.

Bitcoin Fund Raises $65 Mln After First Two Months
Reuters

A fund established to offer investors exposure to Bitcoin is holding around $65 million in the digital currency after two months in operation, its creator, SecondMarket CEO Barry Silbert, said.

Silbert told a group of journalists at his company’s New York headquarters the fund, named the Bitcoin Investment Trust, has 90 investors, among them hedge fund traders and private family investment firms.

PLY: There has been a sudden flurry of wealth managers seeking to get into the cryptocurrency game of late and frankly a lot of them do not strike me as knowing what they are doing. That is as good a sign of an interim bubble as you can get… Meanwhile BTC interest remains off the scale given how many people want to discuss it currently – and there are interesting opportunities in the space!

Time To Take The Bitcoin Bubble Seriously (subscription)
Financial Times

Hubbub over online currency suggests it could be widely accepted.

PLY: I am always a touch concerned when the pinkos endorse something as their track record is a tad, well, let’s say it’s not hard to see why they write for a living as opposed to investing. However, John Authers has credibility and it’s a fair comment – there are humps, bumps and hurdles ahead of us but the future for Bitcoin is bright as cryptocurrency comes to the fore, even if price volatility may continue to be as eye watering as a teenager throwing a tantrum.

Dividend News

CME declared its annual variable dividend, amounting to $2.60 per share. The dividend is payable January 14, 2014, to shareholders of record December 27, 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL and MCX are flat as the story grinds on and the Mumbai Fraud Squad stake their claim for the most activist recoverers of assets on the planet – keep at it, you’re doing a great job!

EOW Calls On Directors Of PD Agro, Namdhari
Business Standard

Continuing investigations and money trail in the NSEL scam, the Economic Offences Wing of the Mumbai Police has called on the directors of Namdhari Foods and P D Agroprocessors.

While two companies under Namdhari Group i.e. Namdhari Food International and Namdhari Rice & General Mills; have a total payment obligations of Rs 51.07 crore (USD 8.3 mln) and Rs 10.45 crore (USD 1.69 mln) respectively, P D Agro is the third largest defaulter of NSEL with obligations of Rs 639.55 crore (USD 103.78 mln) after N K Proteins (Rs 969.89 crore – USD 157.4 mln) and ARK Imports (Rs 719.50 crore – USD 116.7 mln) as on July 15.

NSEL Gets Rs 43-Cr (USD 6.98 Mln) Settlement Offer
The Hindu Business Line

The beleaguered NSEL has received an offer from Ranjeev Aggarwal, ex-CFO of defaulting company PD Agroprocessors, to remit Rs 43 (USD 6.98 mln) crore over eight instalments.

PLY: Repayment duration is not stated but there are details in this article of more settlement offers outstanding. The iron will of the Mumbai Fraud Squad is helping resolve the NSEL crisis now they are in their stride.

Black Marks Add Up For Blackstone In India (subscription)
Financial Times

The patchy record of US private equity group Blackstone in India has been further dented by its holdings in FTIL whose shares have fallen by 71 per cent since the beginning of August. Investors took fright at a scandal relating to NSEL, a commodity exchange owned by FTIL, which suspended trading after a government investigation into investment irregularities.

Blackstone’s troubles with the stock exchange group are only the latest in a number of poorly performing investments in India for the New York-listed group, one of the country’s most active foreign private equity investors.

PLY: FDIs have suffered in India of late, often as a result of being in exchanges/financial infrastructure etc. where there have been sudden regulatory shifts contrary to western best practice. This FTIL investment was always an interesting play but with the company’s valuation earlier this year, surely a risky one given the exposure of the business and the reputation of Jignesh Shah as, well, let’s say a hard man to deal with.

Technology

LME Successfully Completes Technical Delivery For EMIR
LME

LME has successfully delivered the systems modifications necessary to support its members and clearing house in response to EMIR requirements on schedule.

PLY: Well done.

TriOptima’s triResolve Service Leads In OTC Commodity Portfolio Reconciliation With Over 500,000 OTC Commodity Trades From 80 Energy And Financial Firms
ICAP

More than 80 leading energy houses are reconciling over 500,000 OTC commodity trades on the triResolve portfolio reconciliation platform. Users include BKW Energie AG, DONG Naturgas A/S, EnBW Trading GmbH, Eni S.p.A, GDF SUEZ Trading, RWE Supply & Trading GmbH, Total Gas & Power Limited, Vitol S.A, and dealer financial institutions.

PLY: Once again TriOptima brings a welcome blast of (peace and) reconciliation to the world of finance.

Energy Data Hub Leverages Key Technology & Business Partnerships To Enhance Pricing Transparency And Trading Efficiencies
MondoVisione

The Energy Data Hub (EDH), an independent energy data processing entity, has announced a strategic partnership with Sapient Global Markets to advance the development of the EDH platform, a secure central repository for global energy transaction data.

This partnership with Sapient Global Markets follows prior agreements with OTC Online and ISE to support EDH. Each of the three firms will contribute to EDH in a unique way, including provision of technology expertise, business development resources, and equity investment.

Bursa Malaysia Launches Electronic CDS Statements And Notices
MondoVisione

Bursa Malaysia Berhad (Bursa Malaysia) today introduced a new service under its e-initiative programme, namely Bursa Malaysia Electronic Statement (eStatement) to its Central Depository System (CDS) account holders.

With the implementation of eStatement, CDS account holders will be able to request for CDS statements of accounts, notices and other communication from Bursa Malaysia to be delivered to their personalised email addresses instead of the current hard copies of these documents that are being delivered to them via ordinary mail.

PLY: A good move but perhaps Bursa Malaysia could have used an acronym other than CDS as clearly those letters are already somewhat popular for other financial uses?

Products

CME Still Studying Launch Of U.S. Gulf Coast Futures Contracts
Reuters

CME is stepping back from the launch of two new crude oil futures contracts to further assess U.S. oil production and infrastructure growth and how it boosts liquidity in Gulf Coast spot markets.

A light-sweet crude contract and a Canadian heavy crude contract in Houston are still possibilities but they will not be introduced by the end of 2013, as previously suggested.

PLY: The oil / gas benchmarking battle has become even more fascinating with the possible quasi-fragmentation within the USA, let alone the opportunities which have not yet truly borne fruit amongst other oil benchmarks in foreign parts.

Career Paths

PLY: The new board of LIFFE has been finalised post ICE takeover. It’s a good board. First, farewells to: former NYSE Liffe CEO Finbarr Hutcheson (now running the LIBOR benchmark) and Roland Bellegarde, who is staying with the Euronext side of the business.

Andrew Dodsworth, who only joined in August (when the excellent Mark Ibbotson prematurely departed the LIFFE team for pastures anew at GHF), has also left the board while on the non-executive side James Hudis, Peter Green, Jim Gollan, Thomas Clark and David Brewer have all stood down.

The UK LIFFE business will now be merged into ICE Futures Europe and so the boards will be identical going forward. Naturally Jeff Sprecher is joining the board, alongside Roger Barton a former Goldmans and LIFFE manager who has also been on the board of ICE Clear Europe.

Financial regulation expert Alan Whiting will continue to serve on the Liffe board, having been Chairman since May 2012 while Sir Robert Reid, a longstanding IPE / ICE director (Chairman since 1999) will be non-executives alongside existing ICE NEDs Tim Faithfull and Christopher Moorhouse.

OCC announced that Richard Wallace has joined OCC as Senior VP and Chief Compliance Officer.

Tullett Prebon has named Christopher Deissler and James Fleig as Co- Managers of Municipal Bonds in its Chapdelaine Division.

Financial Calendar

Tomorrow

Interactive Brokers $0.10 Q3 dividend payment
NZX 1.5 cents Q3 dividend payment
Record Date Nasdaq OMX Q3 $0.13 dividend

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

Share Notes

Following his sale of 8,365 shares Wednesday, November 20th at an average price of $23.77 (bargain $198,836.05) reported November 25th, the sale of 8,365 shares Tuesday, December 3rd at an average price of $24.56 (bargain $205,444.40) reported December 5th and the sale of 7,952 shares Thursday, December 5th at an average price of $24.56, (bargain $195,301.12) reported December 9th Interactive Brokers CFO Paul Jonathan Brody sold another 8,054 shares Monday, December 9th at an average price of $24.54 (bargain $197,645.16).

Crowdfunding

Tisa Is Lobbying For Use Of ISAs In P2P Lending
ftadviser.com

Mr Vine-Lott said he had spoken to the Treasury and set up a taskforce, encompassing distributors, administrators and platforms, to look into how rules on the matter should be defined, with the intention of inviting peer-to-peer lenders into discussions soon.

Other stories

Wall Street Exhales As Volcker Rule Seen Sparing Market-Making
Bloomberg
Banks, Agencies Draw Battle Lines Over ‘Volcker Rule’ (subscription)
Wall Street Journal

Wall Street banks avoided their worst fears of the Volcker rule after regulators crafted the ban on speculative trading to leave market-making operations intact.

Just a day after the final rule was approved by U.S. regulators, banks and their law firms were busy figuring out how to comply with strict new guidelines on Wall Street firms’ trading activities and how to mitigate any hit to profits. Meanwhile, regulators were on a collision course over who gets supremacy in enforcing the rule.

Five regulatory agencies joined forces to write a preamble to the 953-page rule. But CFTC added language that asserted it is a “primary” regulator for about 110 banks that are registered as swaps dealers, including some of the biggest firms on Wall Street.

That could put the CFTC at odds with three other agencies that will be prime enforcers of the rule: the Office of the Comptroller of the Currency, which oversees national banks; SEC, which oversees broker-dealer units within the banks; and the Federal Reserve, which oversees the largest bank holding companies. The Federal Deposit Insurance Corp. also signed off on the rule, but it generally regulates smaller banks.

The CFTC wanted to include the language in the preamble approved by all regulators, but the idea was rejected because of opposition from the OCC, according to a person familiar with the matter.

PLY: Hell hath no fury as a regulator whose turf/superannuation is impinged upon. If US regulators are going to squabble with each other this has huge ramifications for the rest of the world given the rampant extra-territoriality being expressed by US (and EU) regulators of late.

Futures Traders Shun Mandatory Guards Against ‘Wash Trades’
Reuters

Mandatory safeguards to prevent automated traders from illegally acting as buyer and seller in the same transactions would be harmful to the trading industry by exposing firms to unnecessary risk, a futures-industry group said on Wednesday

Still, mandatory controls to block the transactions “would be not only difficult, but potentially dangerous,” the Futures Industry Association (FIA) said in a letter to CFTC.

PLY: A problem of the ‘it’s kind of easy to know what it is when you see it’ genre but if you let regulators legislate against it, they will take about 950 pages to identify it, with all manner of ‘bumps in the carpet’ emerging.

Alibaba To Extend $8 Bln Loan To End 2014, Buying More Time For IPO
Reuters

Alibaba on Wednesday it is seeking to extend the draw-down period of an $8 billion loan from January next year, a move people familiar with the e-commerce company’s plans said would buy it more time to launch an IPO.

The original expiry date of the draw-down period on the loan was January 30 of next year, according to the deal terms. Alibaba wants to extend that to December 31, 2014.

PLY: More time to for Alibaba see if they can coerce any exchange into accepting their odd corporate governance arrangements.

WSE – Energa’s IPO: Biggest IPO In CEE In 2013
MondoVisione

Energa SA, Poland’s top three power distributor, has had its IPO on Warsaw SE.

The PLN 2.4 billion (USD 792 mln) IPO of Energa SA is the biggest IPO in CEE (Central and Eastern Europe) this year.

PLY: Another smooth privatisation via GPW/WSE. Now the government just needs to get rid of all its other holdings including KDPW, the rest of GPW itself and a myriad of industrial holdings. The result will cut debt, slim the public sector and ought to help make up for pension theft while helping to demonstrate Poland’s government are not slipping back to third rate command management of their economy…

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