December 13 2013


ICE updates, WFE goes for hackers, FTT festers, HFT bickering, OGX concerns, NSE at 20 (Happy Birthday!), a welcome Bulgarian Privatization plan, Jignesh Shah still owns the clothes he stands up in, Pat Arbor may not even have that if he returns to USA… Once again a comment rich edition.

Meanwhile, I attended an interesting meeting last night at the British Embassy in Warsaw run by Chris Skinner’s Financial Services Club where the global chairman himself took the stage to discuss his fascinating new book “Digital Bank.” Very interesting about everything from the Occupy Movement (stars of the Volcker rule text) to how the world is of course run by Games, Guns and Porn with money just a lubricating instrument in between. Very interesting – there’s an FS Club near most of our European readers and they are worth attending to keep up with updates in payments, banking and general finance.

Back to the microcosm of market infrastructure, it’s another fascinating day. Can you afford not to scroll forth and multiply your knowledge? Happy reading:

Public Markets

ICE Update On Transition Of LIFFE To ICE Futures Exchanges And ICE Platform

PLY: A “we’re on track” update from ICE about integrating LIFFE while, like all good divorces, gently glossing over the Euronext situation until it’s ready to sell, er, IPO.

Most everything moves to ICE IT starting with agri commodities due Q1 2014 at which stage it looks as if a quicky divorce of LIFFE and Euronext will be completed paving the way to get rid of that exchange group. Full LIFFE integration anticipated by end 2014. The Basildon data centre will be retained as will be the Liffe pro-rata matching algorithm for interest rate contracts. LIFFE US contracts are going to be centralised in Europe while ICE Clear Europe will report ICE and Liffe exchange traded derivatives to ICE’s European trade repository, ICE Trade Vault Europe.

The combined ICE-LIFFE will be stewarded by the excellent David Peniket.

Global Exchanges Forge Cyber Security Alliance Against Hackers
Fox Business

Under siege by hackers, global financial exchanges announced plans on Thursday to team up by forming the industry’s first cyber security commission aimed at protecting global capital markets.

Disrupting trading on a major exchange like NYSE would mark a major coup for cyber actors. In a recent exercise, “white hat” hackers looking to expose cyber vulnerabilities of the U.S. equity markets were able to directly impact market performance.

Mark Graff, chief information security officer at Nasdaq OMX will serve as the committee’s inaugural chair, while the vice chair will be Jerry Perullo, VP of information security at ICE.

WFE said the founding committee members feature a slew of major exchanges, including the CME, NYSE Euronext, TSX, ASX, DTCC and Saudi SE.

Eleven EU States To Consider ‘Narrower’ FTT

The 11 European Union countries that have pledged to tax financial transactions will consider narrowing the levy’s scope to shield pensions, government debt and markets that help to grease the economy…

PLY: More on the Lithuanian report which is lulling practitioners into a false sense of security. The only safe path forward is no FTT, anything that lives will suffer bracket and rate creep until the EU itself dissolves (more plausible than many think but probably not next year).

HK’s IPO Market Taking Off

Hong Kong’s IPO market is seeing a revival, as new deals are flooding the market after the mainland’s plan to overhaul the economy was announced.

China Everbright Bank Co Ltd, which launched a $2.8 billion offering on Tuesday is scheduled to become the biggest IPO of the year.

PLY: The Chinese ‘revolution’ is hitting capital markets and may be the most significant development in world markets over the next year. A lot appears to be happening behind the scenes, as well as in public.

Brakes On High-Speed Futures Trades Would Do Harm, Industry Says

Slowing down the U.S. futures market by requiring a minimum resting time for orders would hurt investors by driving up their costs, an FIA letter has told the CFTC.

Mandating a minimum resting time for orders, “while technically feasible, will impose higher costs,” Jim Overdahl, an FIA adviser who helped write the comment letter, said on a call with reporters.

PLY: Hmmm, I am not convinced of this argument in its totality aka ‘any resting restriction’ is bad. Yes it controls your risk if the order is there so briefly it rests less than the blink of an eye so only other computers or the existing order book may trade. Then again the problem is simply imposing a resting order rule can be easily worked around by running a parallel ‘equal and opposite’ algorithm anyway. So, the CFTC and the industry may be actually a tad facile in their arguments so far. Then again maybe messaging restrictions for over-eaters of exchange servers is a better way to go than trying to apply a “red flag act” of slowing HFT per se to an arbitrary speed limit (q.v. I have a 1960’s car which can do the UK speed limit – and boy at 70 mph it’s verging on the scary…whereas anything built this year can tool at 80 mph+ with barely a whisper, even the things barely larger than an American family fridge).

OGX Investors Call For Investigation Into Brazilian Stock Exchange (subscription)
Financial Times

Investors are calling on Brazil’s public prosecutors to investigate the role of regulators and the stock exchange in the collapse of Eike Batista’s oil company, as suspicion grows over the events that led to Latin America’s largest-ever corporate default.

PLY: Eile Battista skyrocketed to become one of the richest men in the world and then see his multi-billion dollar business enter administration in, if not quite the blink of an eye, certainly within the terms of a long-dated repo. Clearing the air in this somewhat extraordinary affair would be useful so an investigation is worthwhile, by an appropriate body.

EEX, ECC, OMIP And OMIClear To Cooperate In Trade Registration Of Power Derivatives

EEX & its subsidiary European Commodity Clearing (ECC) have agreed with OMIP, the Iberian energy derivatives exchange, and OMIClear, its Iberian energy clearing house, to cooperate in trade registration of power derivatives and cross-list their products.

EEX German and French Power Derivatives will then be listed at OMIP/OMIClear and OMIP Spanish Power Derivatives at EEX/ECC.

Bulgaria To Privatize Six Major Entities Next Year

Bulgaria will privatize six entities next year: 50.05% of Bulgarian SE – Sofia, 43.7% of the Central Depository AD , 49.63% of International Fair Plovdiv, 30 % of the Bulgarian Maritime Fleet and 100% of AudioVideo Orpheus Inc and 100% of Ovcha Kupel LTD.

PLY: A government which privatizes is always going in the right direction. The privatization of the Sofia exchange is something I have long felt strongly about and I sincerely hope it will find a productive new ownership structure to help Bulgaria achieve its great potential.

Commerzbank Signs With REGIS-TR As Trade Repository For EMIR

Commerzbank has chosen REGIS-TR, the European TR owned by Clearstream (Deutsche Börse Group) and Iberclear (BME) as their provider of trade reporting services, as the EMIR deadline looms February 12, 2014.

Private Markets

At 20, NSE Poised For A Giant Leap
Business Standard

Pankaj Shah, a 42-year veteran of the stock market, remembers the time he first heard of the National Stock Exchange as one of some turmoil in the market. “It was 1993. We were already members of most of the regional stock exchanges,” says the director of Nirpan Securities, a family-run firm whose involvement with the broking business dates back to the time of the British Raj.

The turmoil he talks about involved a well-known corporate entity hit by a liquidity crunch, and there were fears that the large industrialist hit by the crisis was having trouble coming up with the required cash. Details of the crisis are lost to history or perhaps shadowed by the Harshad Mehta scam, which is said to have been the immediate trigger for the exchange’s formation.

PLY: It is easy to be swept up in the wonders of good organisations such as Warsaw Stock Exchange and focus on the rise of free markets in the New Europe. However that would be to forget the utter chaos which was India’s stock marketplace only 20 years ago. Mired in bureaucracy, the paper based settlement system was frequently beset by delivery failures and the regional exchanges were not really creating a cohesive whole. Amusingly America began a centralised regulatory action to unify a national market system and has ended up with a collectivist dog’s dinner. In India, a private digital enterprise propelled a great leap forward and made sense of stock trading. Thus the NSE was born, a cool technocratic validation of everything which is great about Incredible India. A business which began in the face of derision from many observers and coolly, efficiently rose to embody the best of India’s economic journey for the past 20 years.

Happy Birthday and my profound plaudits to the current and past NSE management teams – you have made markets better for everybody and yet still your opportunities are bounteous – all the very best from myself and the Exchange Invest team!

Heirs Chairman Elumelu Plans To Start Nigeria Commodities Bourse

Heirs Holdings Ltd., a Nigerian investment company with interests across Africa in banking, energy, real estate and agriculture, plans to set up a commodities exchange in the continent’s most populous nation.

The Lagos-based investor wants to acquire the state-owned Abuja Commodities Exchange when it is sold, or if that does not succeed, will set one up.

Heirs Holdings, through its African Exchange Holdings Ltd. unit, has stakes in Kigali, Rwanda-based and Lagos-based National Association of Securities Dealers trading platform. The company, in collaboration with the Nigerian Grain Reserve Agency and the Agriculture Ministry, last month established an electronic warehousing system linking farmers and traders, part of the groundwork to set up a commodities exchange.

‘We Would Like To Facilitate Genuine Price Discovery’
The Hindu Business Line

Commodities are going to be a critical driver of India’s economic growth in the next two decades; and futures trading in agriculture, metals and energy products holds humungous potential. NCDEX, set up in 2003, has emerged as the country’s largest agri-commodity bourse.

Samir Shah recently took charge as its MD & CEO at a challenging time for Indian commodity exchanges, here are some of his thoughts and vision…

PLY: Interesting interview about an exchange in a space which still has sensational potential – possibly beyond even the numbers Mr Shah himself states (which themselves can be giddy: if Maize trading reaches an international equivalent benchmark, NCDEX volumes will grow from 5.6 million tonnes to 190 million tonnes alone!).

The opportunity to genuinely empower Indian farmers remains relatively unfulfilled but it has only been a decade of free commodity markets. I wish Mr Shah every success with the task.

Bitcoin Has Been Hijacked By Speculators. Are We Looking At A Ponzi Scheme?
The Telegraph

PLY: Mr Titcomb addresses my longstanding gripe with Bitcoin that it is a commodity at present and a payments tool but not really a currency for conventional commerce q.v. my original Op-Edge on Bitcoin discussing the Copernican Revolution in Money.

To precisely address the Ponzi angle – well I doubt a single person is running a scam (unless Satoshi has made fools of us all) but I do think there is a remarkable concentration risk of BTC holdings thus depleting the free float and causing a liquidity squeeze.

Of course BTC could go back to zero, perhaps if, say, Satoshi is unmasked as an agent of a CIA-NSA conspiracy that created BTC to fund black-ops thus causing the libertarian lobby to feel defiled by the intrusive hand of government and forced to dump the cryptocurrency? Sounds far fetched indeed but then rollback your brain to version 2006 AD and see if the world now looks as you thought it would?

Why Bitcoin Needs Banks

On a mission to convince the world that Bitcoin is enduring and serious, enthusiasts convened at a place that symbolizes the ephemeral and the glitzy: Las Vegas. At the Inside Bitcoins conference sponsored by BubbleCoin, BitDeliver, CoinComply, and other companies — the top issue for many attendees was how to persuade regulators that the digital money and payment system is a valuable financial market innovation, rather than the currency of choice for illicit gambling and drug purchases.

Banks shun Bitcoin companies “because it’s scary,” says Jered Kenna, founder of Tradehill, a Bitcoin exchange that shut down this summer after its bank closed its account. “If the banks aren’t sure, they default to ‘no.’ ”

PLY: I suspect Mr Kenna is actually not just suffering a BTC problem but the ongoing problem that banks have turned their backs on vast avenues of trade in order to ‘comply’ with regulation (aka run away from anything which doesn’t fit into a few Dickensian boxes marked “shopkeeping” “manufacture” etc.). That is a global problem currently stymying emerging market trade.

However, what BTC needs is regulatory acceptance and understanding but to that end I would contend this means a new architecture and not just crummy old fashioned legacy banking structures.

…which brings me back to Chris Skinner’s presentation last evening.

EU Watchdog Aims To Cool Bitcoin Fever (subscription)
Financial Times

EBA warns over ‘violent fluctuations in electronic currencies’.

EBA press release here.

PLY: A valid point and if only all regulators would simply declare “caveat emptor” then we could get on with developing prosperity through crowdfunding et al as opposed to being regulated out of growth. Then again the EBA has sat by ‘helpless’ as EuroStat rules are deployed to steal national pensions, a far larger systemic failure and a much greater theft than all the foibles of the few who used Silk Road or whatever…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is down 3%, FTIL a little over 1%. Currently Jignesh Shah appears to have no assets in his own name, although, like so many complex financiers’ holdings, doubtless there is something stashed away somewhere.

High Court Holds FT Tower, Jignesh Shah’s Stake As Security
Business Standard

A week after Jignesh Shah’s residential bungalow, R Square, was attached by the city police’s economic offences wing (EOW), the high court here on Thursday ordered the iconic FT Tower (and its land) held as security in the payment default case of NSEL.

In an interim order, the court also decided to hold his 48 per cent stake in FTIL (through LaFin Financial Services) as security. It was hearing the case filed by MMTC Ltd for recovery of its investment of Rs 230 crore (USD 37 mln). A final hearing is scheduled for January 24.

PLY: Mr Shah has apparently been restricted to holding household chattels. “Pour encourager les autres” clearly.

HC Refuses To Attach SMX Sale Proceeds In Duel With MMTC

In relief for FTIL, the Bombay High Court on Thursday refused to grant an injunction to MMTC, for restraining FTIL from using the SMX sale proceeds of USD 150 million.

However, Bombay HC dismissed the arguments maintaining that MMTC would be secured to the extent of its exposure.

PLY: So the SMX proceeds can be used to pay down debt.

MMTC, NSEL Promoters Agree On 3-Week Notice Before Asset Liquidation
The Financial Express

At a Bombay High Court hearing of a case filed by MMTC and PEC against NSEL, both sides have agreed to a three-week notice before liquidation of certain assets held by NSEL promoters – FTIL and Jignesh Shah.

EOW To Ask CBI To Probe MMTC, Regulator

The economic offences wing (EOW) of Mumbai police said it will ask the federal investigative agency to probe MMTC Ltd and the role of FMC in the payment crisis at NSEL.

This is being done as EOW itself cannot probe the role of the regulator or MMTC as no first information report or FIR has been filed against them.

EOW will also seek a probe by the Central Bureau of Investigation (CBI) into the state-owned MMTC’s investment in NSEL, Himanshu Roy, joint commissioner of Mumbai police, said on Thursday.


Euronext Seeks ETF Trading Boost (subscription)
Financial Times ‎

Euronext, has launched a new incentive scheme to increase activity levels for its listed ETFs.

Career Paths

SIFMA announced the appointment of Kenneth E. Bentsen, Jr. as President and CEO, effective immediately. Bentsen previously served as SIFMA’s president. Former Senator Judd Gregg has informed the SIFMA Board of Directors that he is stepping down as CEO. Senator Gregg will continue working with the association in the role of senior advisor.

ESMA has announced the composition of its Securities Markets Stakeholder Group (SMSG) following its approval by ESMA’s Board of Supervisors, comprising 30 individuals drawn from across 17 Member States.

PLY: Good to see 8 academics, 4 consumer representatives and 1 representative for SMEs – clearly the entrepreneurial revolution in Europe is well under way – not! As usual the EU constitutes a stakeholder group which guarantees a corporatist mentality hence assuring a self-serving and low standard of debate and little ability to look forward. No wonder the world is growing as Europe dwindles.

The following individuals will make up the SMSG for 2½ years commencing on 1 January 2014:


Fernando Herrero (ES), Member of the Board, Asociación de Usarios de Bancos, Cajas y Seguros (ADICAE) (Association of the Users of Banks, Savings and Securities);
Guillaume Prache (FR), Managing Director, EuroFinUse – reappointment;
Lindsey Rogerson (UK), journalist and former Member of the UK Financial Services Consumer Panel; and
Gabriele Zgubic-Engleder (AT), Chairman of the Board, Verein für Konsumenteninformation (VKI) (Austrian Consumer Association) and Head of the Austrian Federal Chamber of Labour.

Users of Financial Services

Lubomir Christov (BG), Advisor to Active Consumers;
Jaroslaw Dominiak (PL), President of the Management Board, Stowarzyszenie Inwestorów indywidualnych (Individual Investors Association);
Sari Lounasmeri (FI), CEO, Pörssisäätiö Börsstiftelsen (Finnish Foundation for Share Promotion) – reappointment;
Jan Maarten Slagter (NL), Director, De Vereniging van Effectenbezitters (VEB) (Dutch Association of Shareholders) – reappointment; and
Giendrius Steponkus (LT), Chairman, Lietuvos Investuotojai (Lithuanian Shareholders Association).

Financial Market Participants

Thomas Book (DE), CEO, Eurex Clearing AG – reappointment;
Elizabeth Corley (UK), CEO, Allianz Global Investors;
Peter De Proft (BE), Director General, European Fund and Asset Management Association (EFAMA) – reappointment;
Carmine Di Noia (IT), Head of Capital Markets and Listed Companies, Associazione fra le Società Italiane per Azioni (ASSONIME) (Association of Italian Companies);
Krystof Grabowski (PL), Corporate Governance Advisor, Konferencją Przedsiębiorstw Finansowych w Polsce (KPF) (Conference of Financial Companies in Poland);
Judith Hardt (BE), Director General, FESE – reappointment;
Alexander Justham (UK), CEO, LSE;
Rene Karsenti (FR), President and Member of the Board, ICMA;
Jean-Pierre Pinatton (FR), Chairman of the Supervisory Board, Oddo and Cie – reappointment; and
Anne Holm Rannaleet (SE), Member of the Advisory Board, IK Investment Partners AB – reappointment.

Financial Institution Employees

Zsolt Nagygyörgy (HU), Head, Magyar Fejlesztési Bank (Hungarian Development Bank) and member of UNI Europa; and
Chris Vervliet (BE), Senior Risk Manager, KBC Asset Management, and member of UNI Europa.

Small and Medium Enterprises

Salvatore Bragantini (IT), SME advisor to Borsa Italia – reappointment.


Angel Berges Lobera (ES), Professor of Finance, Universidad Autonoma de Madrid – reappointment;
Marina Brogi (IT), Professor of Capital Markets, University of Rome;
Pierre-Henri Conac (FR), Professor of Financial Markets Law, University of Luxembourg – reappointment;
Jesper Lau Hansen (DK), Professor of Financial Markets Law, University of Copenhagen – reappointment;
Niamh Moloney (IE), Professor of Financial Markets Law, London School of Economics – reappointment;
Chrystelle Richard (FR), Associate Professor Accounting and Management, ESSEC Business School;
Stavros B. Thomadakis (EL), Professor Emeritus in Financial Economics of the National and Kapodistrian University of Athens; and
Rüdiger Veil (DE), Professor and Managing Director, Institute for Corporate and Capital Markets Law at the Bucerius Law School, Hamburg.

PLY: It is good to see Judith Hardt, Thomas Book, Peter de Proft, Carmine di Noia and Rene Karsenti on board as they all add a good balance of clout and considerate thought.

It’s however a travesty that only an SME advisor to the Italian stock exchange represents everything outside of large listed markets. A 1 in 30 ratio is deeply disproportionate when we know SMEs grow the economy and are the future of markets in multiple ways.

Financial Calendar


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 219,960 shares Monday, December 2nd at an average price of $24.93 (bargain $5,483,602.80) reported December 5th Charles Schwab EVP Jay Allen sold another 30,832 shares Monday, December 9th at an average price of $25.06 (bargain $772,649.92).

Analyst Notes

Charles Schwab Upgraded By Keefe, Bruyette & Woods To “Market Perform” Rating

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.


Clamour For Regulation Raises Doubts Over Wisdom Of Crowdfunding (subscription)
Financial Times

The use of the web to drum up funding for ventures has caught the popular imagination.

PLY: The scaremongering headline is slightly at odds with the article but as always the fourth estate places itself in the forefront of being able to say “I told you so” as opposed to “we helped grow the economy” and as ever uses hyper-average conservative academics to back up their claim, as if the tenured British state sector can in any way be regarded as a barometer of entrepreneurial capitalism.

Other stories

Ciena To Transfer To NYSE
Wall Street Journal

Ciena(R) Corporation (NASDAQ: CIEN), a network specialist, will transfer its listing from NYSE from NASDAQ. The Company expects that its common stock will begin trading on the NYSE on December 23, 2013, under its current ticker symbol “CIEN”.

SEC Charges Merrill Lynch With Misleading Investors In CDOs

SEC charged Merrill Lynch with making faulty disclosures about collateral selection for two collateralized debt obligations (CDO) that it structured and marketed to investors, and maintaining inaccurate books and records for a third CDO. Merrill Lynch agreed to pay $131.8 million to settle the SEC’s charges.

PLY: At this rate perhaps Chairman Mary Jo White can issue some sort of SEC-squared bonds which give investors upside on how much she manages to get in fines…as a new way to help pay for the agency?

Higher Court Takes Low View Of Ex-CBOT Chief’s Appeal In Divorce Case
Chicago Sun-Times

PLY: Meanwhile the futures industry’s very own one man Brazilian soap opera Pat Arbor continues his dramas unabated…

In a pair of bare bones one-sentence orders, the Illinois Appellate Court this week dismissed Arbor’s appeals from adverse rulings that led him to stash his money offshore and take refuge in Europe.

They sided with lawyers for Arbor’s ex-wife, Antoinette Vigilante, who accused Arbor of a “deliberate and ongoing campaign of open defiance against the authority of the Illinois courts.”

Hmmm, can we have a trade repository for assets before divorce?

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