December 18 2013

elb2Suddenly through the back door it appears the vertical silo model may be about to be rent asunder in Europe. In what may be the move which confirms the EU’s desire to return to a permanently low carbon economy (aka about 1500 AD), the FT reckons a coalition led by self-interested bankers may yet manage to prise open clearing, in one fell swoop handing financial markets supremacy to the USA and Asia. Insane does not do this justice as the banks who blew the system up will win and the politicians look dumb, bribed or both. It will also ultimately severely affect London’s financial centre to its detriment despite the UK government’s misguided support. Open access is feasible and reasonable, forcibly prising open silos to permit wholesale market share grabbing is an act of theft. We shall see what the day brings but given what passes for leadership in the declining European dream, it is hard to be optimistic that common sense can prevail as the exchanges appear to have been monumentally out-manoeuvred at the last moment if this report proves accurate.

Meanwhile, with EU politicians arguably not “fit and proper” the Indian verdict on NSEL management is a big story today while Euronext is raising fees and, well, much more besides…

Public Markets

Crunch Time For Exchanges’ ‘Vertical Silo’ As EU Rules Finalised (subscription)
Financial Times

After three sometimes interminable years, Europe stands on the brink of agreeing its flagship financial markets legislation. European policymakers meet today to hammer out the final details for MIFID II / MIFIR.

The signals coming out of Brussels in the last 48 hours have been that a deal is likely. Rules on HFT and dark pools have been largely agreed. The final battleground is the one with potentially the most profound consequences for the industry…

PLY: Where profound consequences are dismal for infrastructure, bad for investment, great for non-EU financial centres and a classic example of the failure of the EU as it listens to corporate banks and not much else. Worrying developments that have taken on a life of their own apparently having been hugely discounted only weeks ago. Meanwhile whatever decision the EU makes today, vertical silos will remain central in places where there is actually tangible economic growth, like North America, Asia and of course Russia which stands to become an even larger financial centre faster if daft measures are adopted.

Euronext Increases Trading Fees For 2014 (subscription)
Financial News

Euronext is to increase trading fees from the start of next year, making it the latest in a string of exchange operators to raise fees despite falling prices elsewhere in the industry amid competitive pressures.

The main change is the introduction of an additional pricing segment for mid-cap stocks — Euronext currently has pricing segments for large and small-cap stocks.

PLY: If Euronext can raise fees good luck to them. There are certainly some areas where exchange fees look remarkably lean although I haven’t spent much time examining the Euronext slate per se.

The Changing Landscape Of Europe’s Equity Derivatives Market (subscription)
Futures and Options Intelligence

Increasing competition could be set to alter the landscape of Europe’s equity derivatives markets.

PLY: Discussing the way that a predominantly national market system (albeit not between the heated competition of say Euronext, LIFFE, EUREX and TOM) may change in European equity derivatives in the usual ‘he says, she says’ round robin format of mass quotation popular with many industry publications.

NASDAQ IPOs Surge 74 Percent In 2013
Nasdaq OMX

NASDAQ OMX welcomed 233 new listings to The NASDAQ Stock Market in 2013, including 125 IPOs – more IPOs than any other U.S. exchange, representing a 74 percent increase from the 72 IPOs that occurred on NASDAQ in 2012.

60 percent of the top 100 best performing IPOs overall this year, including seven of the top 10, listed on NASDAQ and combined proceeds raised by NASDAQ-listed IPOs in 2013 totaled more than $15 billion.

NASDAQ also led the industry with 30 listing venue switches with $66.6 billion in combined market value switching from our competitors’ exchanges to NASDAQ in 2013.

PLY: Statistics which slightly differ from those published in the WSJ yesterday which we reported on aka more IPOs at NASDAQ. Whereas yesterday data from Renaissance Capital suggested NYSE had 119 IPOs to NASDAQ’s 102. Hmmm, clearly we need a trade reporting system for IPOs.

New Owners Plan Major Overhaul Of SMX (subscription)
Business Times

The new owners of SMX are planning a major overhaul of the once struggling exchange.

ICE intends to establish a new board of directors, new management, and switch from using technology by SMX’s owner and parent company, FTIL, to ICE’s technology.

PLY: Utterly unsurprising as ICE seeks to exploit the opportunity afforded by being able to buy a clearing house & exchange (after they had apparently previously made a separate application to start exchange/clearing operations in the city state).

CFTC Grants LCH.Clearnet SA Registration As A Derivatives Clearing Organization
MondoVisione

CFTC issued an Order granting Banque Centrale de Compensation, doing business as LCH.Clearnet SA (LCH.C SA), registration as a derivatives clearing organization pursuant to Section 5b of the Commodity Exchange Act.

Private Markets

Keler Taps SIX For Settlement And Custody Services
waterstechnology

Swiss post-trade services provider SIX Securities Services has signed an agreement with Hungarian central securities depository (CSD) Keler to optimize Keler’s international settlement and custody capabilities.

Owned by the Central Bank of Hungary and the BSE, Keler aims to enhance its cross-border settlement efficiencies and asset servicing capabilities in a competitive post-trade environment.

PLY: Good move by the fine folk of Keler led by Gyorgy Dudas.

ECC To Introduce Trade Reporting Services
MondoVisione

European Commodity Clearing (ECC) will also offer reporting of transaction data – so-called Trade Reporting – in the framework of EMIR which will begin 12 February 2014 for both exchange and OTC transactions.

Nigeria – Brokers Insist On NSE Demutualisation Before Recapitalisation
This Day Live

The Association of Stockbroking Houses of Nigeria (ASHON) has called on SEC to ensure the demutualisation of the Nigerian SE before introducing a new capitalisation for capital market operators.

The association also stated that even if SEC will announce new capitalisation for brokers, it should be classified according to function and level of risk each broker is carrying.

Bitcoin: Govts Should Tame It, Not Ban It
The Telegraph

Central banks are afraid that a Bitcoin collapse would send shockwaves through the “real world” economy, and that they could do absolutely nothing about it

PLY: Permit me to translate: central bankers, who frequently espouse competition are terrified that their own outdated monopoly is toast. They can’t find a way to kill the upstart so want it to be brought under their suzerainty to help their own superannuation. Total Bitcoin capitalisation is less than the GDP of a medium sized US city currently so the idea of shockwaves is of course nonsense when the Fed pumps 85 billion (many times more than total cryptocurrency value) into the US economy every month!

Amidst this dismal scare story, there are various inaccuracies and downright errors: China has banned banks from holding BTC which is a good thing as banks local and central are so very 19th century and hence doomed. China has not banned BTC outright. Decentralised currency has many foibles but is fortunately not controlled by spendthrift governments or central bankers holding purely electoral or skewed economic views. It is the future.

U.S. Treasury Cautions Bitcoin Businesses On Legal Duties
Reuters

The U.S. Treasury Department’s anti money-laundering unit is warning businesses linked to the digital currency Bitcoin that they may have to comply with federal law and regulation as money transmitters.

PLY: A regulatory attack which may merely impede the growth of cryptocurrency but demonstrates the ghastly nature of US bureaucracy as encouraged by a dismal anti-enterprise government.

China’s Next Anti-Bitcoin Move Targets Payment Processors
eCreditDaily

China is reportedly taking further action against bitcoins by cracking down on third-party payment processors that feed real money in and out of the cryptocurrency’s exchanges.

PLY: The Yuan is not free floating so China is seeking to protect its position. Again the long-term effect of all these fingers in the dam is not going to prevent the deluge eventually washing through…

Special Section: FTI, NSEL, India at the Crossroads

PLY: Of course NSEL defaulted in week 18 but that is secondary news today. MCX is up 4%, FTIL down 2%, as the “fit and proper’ adjudication has come through from FMC.

The NSEL tally of shame remains:

(N.B. Anticipated weekly repayment is Rs 174.72 crore, roughly USD 28,000,000)

Week 1: Rs 92.73 crore (USD 14.37 mln) paid
Week 2: Rs 12.05 crore (USD 1.79 mln) paid
Week 3:Rs 15.37 crore (USD 2.29 mln) paid
Week 4: Rs 7.77 crore (USD 1.21 mln) paid
Week 5: Rs 8.57 crore (USD 1.35 mln) paid
Week 6: Rs 11.45 crore (USD 1.82 mln) paid
Week 7: no payout – bank accounts frozen
Week 8: Rs. 2.85 crore (USD 457.9 k) paid
Week 9: Rs. 28.34 crore (USD 4.58 mln) paid
Week 10: Rs. 30 lakh (USD 49k) paid
Week 11: Rs. 29.05 crore (USD 4.72 mln) paid
Week 12: Rs. 11 crore (USD 1.77 mln) paid
Week 13: no payout
Week 14: Rs. 6.1 crore (USD 976.7k) paid
Week 15: Rs. 9 crore (USD 1.44 mln) paid
Week 16: Rs. 9 crore (USD 1.44 mln) paid
Week 17: Rs. 9 crore (USD 1.46 mln) paid
Week 18: rs. 11.5 crore (USD 1.85 mln) paid

NSEL Defaults 18th Time; Pays Rs 11.5 Cr (USD 1.85 Mln) Against Rs 174.72 Cr (USD 28.21 Mln)
The Economic Times

Crisis-ridden bourse NSEL today paid about Rs 11.50 crore (USD 1.85 mln) against the scheduled payment amount of Rs 174.72 crore (USD 28.21 mln), defaulting for the 18th straight time.

With today’s pay-out, NSEL has so far settled about Rs 263.50 crore (USD 42.55 mln) against about Rs 5,600 crore (USD 900 mln) dues to 13,000 investors.

PLY: Steady as she goes. This looks disastrous until we recall the Mumbai Fraud Squad are now a serious asset holder thanks to seizures from various parties in the NSEL fraud… Against that background repaying 1.85 million dollars helps, even if the NSEL scheme in and of itself has proven profoundly inadequate.

Jignesh Shah, FTIL Unfit To Run An Exchange, Says FMC
Livemint
FTIL’s Jignesh Shah ‘Highest Beneficiary’ Of NSEL Fraud: FMC
First Post

Jignesh Shah, chairman of FTIL, is not fit to run an exchange in India, the commodities markets regulator said in a order late Tuesday.

FMC has said that Jignesh Shah was the biggest beneficiary of the fraud at NSEL.

Rubbishing Shah’s claims that he was a victim of employee fraud, the commission said he benefited from the profits of NSEL that surged on the illegal paired contracts and the skyrocketing market capitalisation of his listed entities.

PLY: MCX-SX lives, albeit awaiting a new CEO and with a Chairman who is a seen as a ‘safe’ bureaucrat (probably not the best for business but ideal for the regulatory-political nexus prevalent in India’s complex, quasi-populist approach to, er, ‘free’ markets). It should not be sacrificed but its promoter clearly needs to sell out.

With this action, the floodgates have opened and the impact on FTIL will be significant too as it is a business defined by Jignesh Shah with his many talents and concomitant peccadilloes.

That ‘for sale’ sign above all FTIL exchange stakes just gained a “seller in distress” signal to those who want to quickly acquire bourse assets. Blackstone for one, it seems (q.v. the Shareholders/Investors section).

FMC Directs FTIL To Cut Stake In MCX To 2%
Moneycontrol

FMC has asked Jignesh Shah-founded FTIL to cut its stake in commodity bourse MCX to 2 percent from the current 26 percent, saying it did not satisfy the “fit and proper” criteria to hold a bigger stake in the bourse.

PLY: As a corporation deemed not ‘fit and proper’ to run an exchange, FTIL not only has a lot of stakes to sell but institutions may find it difficult to buy IT systems from a company which has been so publicly rebuked methinks…

After MCX, Will FTIL Have To Let Go Of MCX-SX?
Moneycontrol

JN Gupta, Former Executive Director at SEBI, believes FMC asking FTIL to reduce its stake in commodity exchange MCX could have an impact on the company’s stake in stock exchange MCX-SX as well.

Will SEBI Now Act Against MCX-SX?
Livemint

“The applicant has been dishonest in withholding material information… and cannot be considered to have adhered to fair and reasonable standards of integrity that should be expected of a recognized exchange.”

No, this isn’t from FMC’s latest order against FTIL, declaring it to be unfit and improper to run an exchange. It is from an over three-year old order by K.M. Abraham, whole-time member of SEBI, rejecting MCX-SX’s application. His order was eventually overruled by the Bombay high court, and while Sebi initially challenged it in the Supreme Court, it later arrived at an agreement with MCX-SX.

PLY: MCX-SX has a Chairman who can navigate the corridors of power, it falls to him to ensure the exchange’s licence but at the same time all eyes will be on the new CEO as a radical upheaval is required and names in the frame seem to be somewhat establishment…

Jignesh Shah, EOW Officials To Appear Before Bombay High Court On Wednesday
The Economic Times

The Bombay High Court has directed Jignesh Shah, chairman & CEO, FT group, and officials from Economic Offences Wing, Mumbai police, to appear before it on Wednesday for clarifying their stance on the attachment of Shah’s assets.

The court of Justice SJ Kathawala, hearing the MMTC recovery suit against NSEL case, directed Shah’s counsel to provide it with copies of notice of attachment of his assets by EOW.

Shah’s counsel reportedly stated that his client had been informed verbally of the attachment and had not been served copies of the notices so far. Justice Kathawala then reportedly directed Shah and certain officials of EOW to be present in court to clarify the issue of attachment.

PLY: As I christened it, the shameful joy of the FTIL founders slow-moving demise: “Shahdenfreude’ is at a new high in the parts where Jignesh was deemed to have acted in a less than decent manner while the noose has tightened further. A personal ‘fit and proper’ order being removed will be a bitter blow but applied to his IT company too it is a huge ongoing problem for Mr Shah to have even a peripheral role in organised markets anywhere in the world.

Technology

MarketAxess Launches First Independent Central Limit Order Book For Single-Name CDS
twst.com

Fixed income platform MarketAxess, is expanding MarketAxess Trade Crossing Hub (MATCH), the first independent central limit order book (CLOB) for single-name CDS.

MATCH offers a new way to trade single-name CDS, with market participants able to send and receive anonymous orders, to be accessed by all other market participants.

Barclays will act as the primary market maker to help ensure the availability of continuous two-way markets.

ICE Signs For SuperDerivatives Market Data
Finextra

Cloud-based SuperDerivatives, will provide its award-winning, independent market data to ICE.

InfoReach Launches Electronic Bond Trading Via Nasdaq (subscription)
Financial News

US vendor InfoReach has added fixed income markets to its trading network to meet growing demand from financial institutions which are looking to leverage synergies between their equities and fixed income businesses.

Eris Exchange Connects To RTS
waters technology

Algo solutions provider (former ISV) Realtime Systems Group (RTS), has connected to Eris’s SwapBook platform.

Products

SGX Plans Steel Derivatives Launch, To Take On China Rebar
Reuters

SGX plans to launch steel futures and swap contracts early next year, hoping to cash in on rising consumption of the alloy in Southeast Asia.

SGX is trying to open up the Asian steel derivatives market by taking on rebar futures in Shanghai, currently the world’s most liquid steel futures, but which are not open to foreign investors unless they are registered locally.

SGX contracts would add more steel derivatives to a largely illiquid global suite outside China, and their success would depend on whether traders from the world’s biggest steel consumer and producer use them or not.

CME’s Swap Future Passes Trading Milestone (subscription)
Futures and Options Intelligence

CME has topped for the first time 100,000 positions in its new US swap future.

PLY: Good news for CME who are leading the pack in swap futures ahead of some interesting launches next year.

Career Paths

According to Bloomberg, Graham Dick, who was once the head of business development at market operator Chi-X Europe, joined London-based Aquis to run its sales and client relationship management team, according to a statement. Nasdaq OMX’s Leila Mayet will start early next year as an executive in that group.

Dick most recently worked on the Coba Project, which unsuccessfully sought to administer a consolidated data feed to distribute prices for European stocks. He once held positions at UBS AG and Credit Lyonnais SA, and of course, worked closely with Aquis founder Alasdair Haynes at Chi-X Europe. Mayet previously worked for BM&FBovespa SA.

Bloomberg reports that the CEO of LCH.Clearnet’s unit, CDSClear, Charlie Longden, has left.

Longden, one of the four business heads at the clearinghouse, ran the CDS business. The executive decided to leave to seek a new challenge. Gavin Wells, the CEO of the company’s ForexClear service, will take on responsibility for the CDS business.

The North American Derivatives Exchange (NADEX) is pleased to announce the selection of Tim McDermott, a senior member of the current management team, as the new CEO.

Tim McDermott has been with Nadex for almost six years working alongside the current CEO, Yossi Beinart, as Nadex’s General Counsel and Chief Regulatory Officer. Mr. Beinart is leaving Nadex at the end of this month to become the CEO of the Tel Aviv SE.

FINRA has named two new public Governors — Dr. Brigitte C. Madrian and Dr. Luis M. Viceira — to its Board of Governors. Dr. Madrian, the Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School, and Dr. Viceira, the George E. Bates Professor at the Harvard Business School, will join the Board in January 2014.

Changes in Investors/Shareholders

Blackstone To Raise Stake In MCX To 5%
Business Standard

Blackstone is looking to acquire a 3% stake in India’s largest commodity exchange MCX, a move that will increase the private equity major’s stake in the bourse to almost 5%.

Blackstone currently holds 1.99% stake in MCX. The private equity is looking to raise its stake in MCX through secondary market purchases.

PLY: With FTIL a seller, 3% ought not to be overly difficult to obtain…

Financial Calendar

Friday

CBOE Q4 $0.18 dividend payment

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, the sale of 7,952 shares Thursday, December 5th at an average price of $24.56, (bargain $195,301.12) reported December 9th, the sale of 8,054 shares Monday, December 9th at an average price of $24.54 (bargain $197,645.16) reported December 12th and the sale of 8,472 shares Wednesday, December 11th at an average price of $24.16 (bargain $204,683.52) reported December 16th Interactive Brokers CFO Paul Jonathan Brody sold another 7,437 shares Friday, December 13th at an average price of $24.45 (bargain $181,834.65).

Following his sale of 11,867 shares Friday, November 22nd at an average price of $24.21 (bargain $287,300.07) reported on November 27th, the sale of 12,117 shares Tuesday, November 26th at an average price of $24.28 (bargain $294,200.76) reported November 28th, the sale of 14,303 shares Thursday, December 5th at an average price of $24.56 (bargain $351,281.68) reported December 9th and the sale of 15,237 shares Wednesday, December 11th at an average price of $24.16 (bargain $368,125.92) reported December 16th Interactive Brokers Chairman Earl Nemser sold another 13,376 shares Friday, December 13th at an average price of $24.45 (bargain $327,043.20).

Analyst Notes

ICE Shares Hit 52-Week High
Zacks

On Dec 16, 2013, shares of ICE hit a 52-week high of $222.39.

The momentum was driven by continued outperformance, enhanced guidance, and continuing efforts to grow.

PLY: Permit me to simplify: the momentum was driven by coherent management.

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

FCA Crowdfunding Regulations Cautiously Welcomed By Industry
Business Reporter

Proposed regulations for crowdfunding and peer-to-peer lending platforms have mainly been welcomed by industry insiders.

PLY: Insofar as a tiny cabal of people have grouped together to try to use a narrow-based industry body to create rules from closed door sessions with FCA, the above story is accurate. However, the FCA, while making progress is still very much off the beaten track with its regressive approach to allowing, the actual ‘crowd’, to indulge in crowdfunding due to old fashioned restrictive approaches deeply embedded in the DNA of the regulatory classes. In that sense the broad and growing group of crowdfunding stakeholders have not been consulted leading to the current flaws in the proposals which is a shame.

Other stories

Thomson Reuters Sells Tax Preparation Businesses (subscription)
Wall Street Journal

Thomson Reuters sold its tax preparation and court accounting outsourcing businesses to accounting firm Ernst & Young.

SEC Announces Enforcement Results For FY 2013
MondoVisione

SEC announced that the agency’s enforcement actions in fiscal year 2013 resulted in a record $3.4 billion in monetary sanctions ordered against wrongdoers.

The SEC filed 686 enforcement actions in the fiscal year that ended in September. The $3.4 billion in disgorgement and penalties resulting from those actions is 10 percent higher than FY 2012 and 22 percent higher than FY 2011, when the SEC filed the most actions in agency history.

PLY: SEC rakes in cash, has it helped create a better market?

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