December 16 2014


NASDAQ received an unfortunate pre-Christmas surprise last Friday when S&P further pushed them down in the junk rankings to BBB- albeit due to an S&P criteria change and not a deterioration in NASDAQ’s own balance sheet (IBKR suffered a shift from A- to BBB+ for the same reason). Right now that may not appear such a terrible thing in an era of cheap money fuelled by a mega bond bubble. However the latter will come to an end and I still suspect it will conclude a lot sooner than many nascent bond platforms appear to be planning for. The NASDAQ management have done many good deals of late (eSpeed and the Thomson Reuters IR platforms amongst them) but they clearly will need to concentrate on leverage reduction during 2015.

Meanwhile, that apparent 5 cents per quarter bleed from NLX is festering with no sign of coagulation.

Volumes have collapsed since the latest incentive programme and that remarkable warning about members not indulging in wash trades. I have consistently questioned whether the whole edifice of NLX was built purely on uneconomic market activity and continue to ponder just why the FCA are not more keen to pursue the dearth of evidence that NLX is a genuine market when it appears to be mostly a crossing venue for incentivised market makers?

Last week volume on NLX was deeply disappointing and yesterday it was utterly dismal. A volume blip in Schatz made it the largest contract on NLX last week albeit with little appreciable change in Open Interest.

Yesterday, the market hit a new nadir. Total volume was a paltry 5982 contracts across all markets. That is surely proof enough for investors that this venture has been a failure, despite the enormous investment, the vast marketing spend and all that management hype. I know I am far from alone in consistently failing to find reasonable proof that there was ever a threat to the “ICE Age” despite those breathless advertisement splashes.

The latest rumours suggest some new buy side players are ‘just about to sign up.’ Does this mean these institutions have completed sensible due diligence about the venue? I am sorry for some good people employed within NLX but in my opinion, the venue is simply not credible. Yes, entering new markets is difficult but the FCA has allowed a vast grey area to be created between what amounts to honest competition and what is providing spurious non-economic volume through wash trades. It would be interesting to hear why the FCA have not done anything about the venue so far when it is difficult to discern the economic benefit of trade at NLX.

Recently I felt compelled to say it was time for NLX to close. 5982 contracts in a day yesterday was a weak defence from the market itself. Meanwhile how long will the FCA leave itself open to criticism that it encourages competition at the potential expense of market integrity? The latter charge I suspect will hang over the regulator for much longer than NLX will survive. What a sad situation for all of us who simply want better markets.

Public Markets

DB1 In Retail Land Grab; Ups Share In Tradegate
FTSE Global Markets

DB1 is exercising call options on shares in Tradegate, thereby increasing its stake in Tradegate from approximately 5% to almost 15%. “This increase is strategic for us,” explains Martin Reck, cash market MD at DB1.

DB1 press release here.

PLY: An interesting move as DB1 expands its stake in a market making group…

BGC Partners Agrees To Buy RP Martin Assets
Ambereen Choudhury – Bloomberg

BGC Partners agreed to buy the U.K. assets of RP Martin Group Ltd. for an undisclosed sum to strengthen its foreign exchange and rates businesses. BGC Partners also plans to purchase the Swedish and Dutch assets of RP Martin in 2015. The businesses had revenue of more than $50 million in total during the fiscal year ended Sept. 30, the company said.

The announcement comes as BGC continues to pursue a takeover of GFI in competition with a GFI/CME breakup plan.

PLY: RP Martin was being shopped around for low double digit millions in recent months. Its independent ownership fell victim to the perfect storm of IDBs’ traditionally low capital base (all change in the SEF era) and the reluctance of institutional investors to buy pre-commoditised broker dependent (and thus headcount heavy) IDBs. I am not quite sure precisely what the beneficial fit is for BGC per se but I do reckon there was more that could be made out of this by a canny investor without a prior footprint in the sector.

Barclays Dark-Pool Suits To Be Handled By New York Judge
Jef Feeley – Businessweek

Barclays investors suing over claims the bank hid high-frequency traders’ role in its dark pool will have their cases consolidated before a federal judge in New York to make pretrial information exchanges quicker and less costly. NY AG Eric Schneiderman sued Barclays in state court in June.

Too Big To Resist: Wall Street’s Comeback (subscription)
Edward Luce – Financial Times

When Washington is on the brink, who has the clout to persuade legislators to keep government open? The obvious answer is the US president. A better one is Jamie Dimon, CEO of JPMorgan Chase. With last week’s vote in doubt, Mr Dimon helped to arm-twist Congress to pass a bill to keep the Federal government running for most of next year. What a splendid public service, I hear you say. In fact, his motive was more specific. The bill included an unrelated item allowing banks to resume derivatives trading from their taxpayer-insured arms. That ban is now history. Who other than a Wall Street titan could demand — and receive — such a service?

PLY: Ed Luce eloquently discusses a moment which I suspect may go down in banking history. Bank power peaked outright in 2008 but the inability of the political classes to bring the banking industry to book will only come back to haunt all parties concerned and this remarkable action by Mr Dimon will, I suspect be much recorded in subsequent histories to demonstrate the shameful fiasco of corporate socialism where banks had a 100% call win and held a 100% put government guarantee due to some very dubious previous actions…

Stock Through-Train Quota May Last Forever (subscription)
Enoch Yiu – South China Morning Post

Trading activity in the stocks through-train scheme linking the Hong Kong and Shanghai stock markets has been below expectations in the first month, but one should not underestimate its growth potential.

PLY: This almost qualifies as a positive for “through train” in the HK media! Given that the past month has seen a lot of worries in the emerging markets sphere amid collapsing oil prices etc, there remains a good argument that now is not the time the macro investor is looking eagerly at China…

Dodd-Frank Under Fire In Trading Case (subscription)
Gina Chon – Financial Times

A new law against placing and quickly cancelling bid orders to sway others to trade was “hopelessly vague” and prosecutors over-reached by bringing the first criminal case against a high-frequency trader, according to a motion to dismiss the case.

Citing weaknesses in the anti-“spoofing” provision of the 2010 Dodd-Frank financial reform legislation is a critical part of the defence of Michael Coscia, the first person to face criminal prosecution for the practice.

Trading Places Year In Review
Huw Jones – MondoVisione

This year probably won’t go down as a vintage one for exchanges and the market infrastructure industry.

Futurisation, ‘Plumbing’ And How One Size Certainly Does Not Fit All
Richard Baker – MondoVisione

Futurisation of OTC Derivatives has been a key topic of conversation at many events and conferences I have attended over the last few weeks on a global level…

In Patrick’s Opinion – 2014 Exchange Forum Chairman Reports His Centre Stage View Of Events
Patrick L Young – MondoVisione

For delegates, you left wiser and indeed I believe somewhat entertained. Feedback suggests unanimous enjoyment of a pacy, high energy forum. It was my pleasure to chair and I delighted in the myriad of topics ably covered by terrific Chairmen and fantastic panellists. One column is not enough to do justice to you all by any stretch. Besides, those who were there deserve to retain an informational advantage over ‘stay-at-homes’.

Private Markets

NBHC Partners With NCDEX For Warehouse Service
Dilip Kumar Jha – Business Standard

IVF Trustee Company owned National Bulk Handling Corporation (NBHC) has joined hands with NCDEX for providing warehousing services to the exchange’s members and clients. NBHC was sold by FTIL to IVF Trustee Company for Rs 241.74 crore (USD 39.8 mln) in April.

CFTC Requests Public Comment On Related Applications Submitted By LedgerX, LLC For Registration As DCO & SEF

CFTC is asking for public comment on related applications submitted by LedgerX, for registration as a DCO and registration as a SEF. LedgerX plans to list and clear fully collateralized, physically settled options on bitcoin. Comments should be submitted on or before January 30, 2015.

PLY: We wish LedgerX every success as it breaks ground as a CFTC regulated marketplace for cryptocurrency.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Both MCX and FTIL down circa 5% as the Indian market is off 1-2%.


Error Prompts Nearly Full-Day Shutdown Of ISE Options Markets
Sam Mamudi – Bloomberg

ISE and its smaller sibling, ISE Gemini, were halted at about 9:45 a.m. New York time and never reopened.

PLY: Meanwhile KCG in London apparently suffered a full day outage Monday as well…

DGCX Offers New Settlement Services Based On Cinnober Technology

DGCX & its CCP service provider, Dubai Commodities Clearing Corporation (DCCC), have launched a new settlement service that will enhance trading and cost efficiencies for clearing members powered by Cinnober.


HKEx Launches Incentive Programmes For RMB Currency Futures

RMB currency futures contracts have proven themselves as an effective risk management tool for market users amid increased USD/CNH volatility, and HKEx is introducing additional measures to solidify the development of the RMB currency futures market.

Euronext Launches Single Stock Dividend Futures

Euronext will launch Single Stock Dividend Futures on the most liquid stocks listed on its Amsterdam, Brussels, Lisbon and Paris markets from Q1 2015.

Dalian Commodity Exchange: Corn Starch Futures To Be Listed On 19th

TriOptima Completes First Compression Cycle With JSCC For Cleared JPY Interest Rate Swaps

TriOptima has cooperated with Japanese Securities Clearing Corporation (JSCC) to complete the first compression cycle for cleared JPY IRS in JSCC.


CESC Launches New Index Series On Shanghai-Hong Kong Stock Connect

China Exchanges Services Company (CESC) Monday launched a new index series on the Shanghai-Hong Kong Stock Connect programme. The series is composed of the CES Shanghai-Hong Kong Stock Connect 300 Index (CES SHSC300) and CES Stock Connect Hong Kong Select 100 Index (CES SCHK100).

Career Paths

WSJ reports that Hector Sants, once the U.K.’s top financial supervisor, is to join management consultant Oliver Wyman, a year after he stepped down from Barclays PLC because of stress and exhaustion.

Financial Calendar

This week

Record date ICE $0.65 Q4 dividend
Thomson Reuters $0.33 quarterly dividend payment
CBOE $0.21 quarterly dividend payment

New announcement

TMX Q4 Financial Results – Tuesday, February 3, 2015

TMX press release here.

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

Share Notes

Interactive Brokers CFO Paul Jonathan Brody sold 5,406 shares Thursday, December 11th at an average price of $28.42 (bargain $153,638.52). Mr. Brody’s regular sales are chronicled on this specific page.

Analyst Notes

RBC Capital Markets Initiated A Coverage On Euronext NV – “Outperform” Rating, €30 Price Target
Deutsche Bank Lifted Their Price Objective On Charles Schwab From $35.00 To $36.00 – “Buy” Rating
NASDAQ Received A “BBB+” Credit Rating From Morningstar
NASDAQ was downgraded to “BBB-” From “BBB” by Standard & Poors:
IBKR was downgraded from “A-” to “BBB+” by S&P on the same criteria change which affected NASDAQ:

S&P Revises Nasdaq Credit Rating

On December 11, 2014, Standard & Poor’s (“S&P”) lowered Nasdaq’s rating on its senior unsecured debt from BBB to BBB- and on its issuer credit from BBB/Negative to BBB-/Stable. The revisions are based on S&P’s review of the ratings of 20 global financial market infrastructure (“FMI”) companies by applying its revised criteria for FMI companies published on December 9, 2014. In its release, S&P states that the revisions are due to a change in criteria applied by S&P rather than a sudden change of the issuers’ creditworthiness.

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

ASIC Investigation Leads To Interactive Brokers Refunding $1.5 Million To Australian Customers

Following an investigation by ASIC, Interactive Brokers, will refund approximately $1.5 million in fees and commission payments to its retail margin lending customers.

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