December 18 2014

ESMA looks at pan European crowdfunding rules as BGC ups the ante again in the bidding war for GFI. LSE updates pre-close while Commissioner Hill promises to prevent ‘too big to fail’ CCP risks. All this and more today complete with a video from yours truly, discussing the future of cryptocurrency which I recorded when visiting Cinnober in Stockholm and Umea, watch it HERE.

cinnober video 2014

Meanwhile, over on EI Premium, we’re adding a new service to help make our paying supporters wiser – with briefs which coalesce in one place the history of particular incidents and stories. That way you can log in and use your individual licence to stay wiser at the water cooler and everywhere else. Brief number one is NLX where I have raised questions that the conventional media have been largely unable to ask while we all ponder just what the regulators are doing given the odd gap between some publicity and what appears to be actually ‘traded.’

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Public Markets

BGC Boosts Takeover Offer 3.8% For GFI
Zeke Faux – Bloomberg

BGC Partners increased its takeover offer for rival GFI Group by 3.8%, sending GFI a letter Dec. 11 bidding $5.45 a share, 20 cents more the previous proposal.

Lutnick, BGC’s chairman and CEO is seeking to consolidate the shrinking interdealer brokerage business by topping CME’s takeover bid for GFI. CME matched Lutnick’s previous $5.25-a-share offer on Dec. 2.

PLY: A drip drip torture approach by BGC, gradually edging up its bid once again, placing more pressure on CME and the incumbent GFI management.

LSE Pre-Close Trading Update

£41.0 billion equity capital raised on the Group’s markets for the period (2013: £26.7 billion): 193 new issues (2013: 140); new issue pipeline remains encouraging…

PLY: Seems to be growth with the relative unit rates a slightly mixed bag but overall what has done worse is cancelled out by what has done better. SwapClear is growing impressively, IRS up 29%, global client swap clearing up 126% at $117 trillion out of $186 trillion cleared since launch. Overall encouraging progress from the Xavier deal machine.

CFTC Approves LCH.Clearnet’s Amended Order Of Registration As A DCO

CFTC approved an amendment to and consolidation of LCH.Clearnet’s orders of registration as a DCO. LCH permitted to provide clearing services for “swaps,” as defined in the Commodity Exchange Act (CEA) and Commission regulations, as well as all futures and options on futures, regardless of the underlying asset class.

NYSE Plan Would Revamp Trading (subscription)
Bradley Hope & Scott Patterson – Wall Street Journal

ICE is pushing a major overhaul of the U.S. stock market aimed at helping exchanges reclaim their role at the center of trading.

ICE is proposing a compromise between exchanges and Wall Street banks that trade on behalf of large investors. Exchanges would cut banks’ trading costs by more than 80% if they agreed to a rule that would move more trading away from their so-called dark pools and other off-exchange venues, according to a draft letter being circulated to large banks and investment firms by Jeff Sprecher.

…It also would be the most aggressive attempt to date by established exchanges to fight back against the loss of trading.

PLY: (in line with yesterday’s “ “Systematically Internalise that Gotham bankers!” I think “KAPOW!” is the best surmise of this initiative.

At the same time it does lead me (and I know I am not alone) to ponder just what the incumbents were doing previously about reforming the dog’s dinner which is US stock market infrastructure. Whether ICE succeeds, at least they are trying to build a better market as opposed to merely exploiting the Balkanised landscape – bravo.

Dark Pools In Spotlight As EU Moves To Bolster Markets
Jim Brunsden & John Detrixhe – Bloomberg

ESMA plans to release draft standards as early as tomorrow that flesh out EU law. Regulators say the rules, which seek to cap equity trading in dark pools and push more swaps trades on to regulated platforms, will make markets more resilient during crises and less prone to abuse. Some brokers counter that the move will backfire by making trading too expensive.

PLY: More rules clearly never make trading cheaper is one truism. Meanwhile the double volume cap shuffle is a brilliant example of just how moronic bureaucracy can manage to render greater costs and concomitant problems which again deliver less growth.

Clearinghouses Face EU Push On Too-Big-to-Fail Risks
Jim Brunsden – Bloomberg

The European Commission will propose legislation next year to toughen regulation of clearinghouses in a bid to prevent financial turmoil should one of them fail.

Previous comments on the subject here while the issue was raised in the Premium Post “Homer Simpson & the Supermodel buffet”. The proof of the eating will of course be whether Commissioner Hill is following the current market destructive course of the EU or will align himself with the largely ignored concept of capitalism and growth which is quite popular in the rest of the world where economic growth is a lot more common than declining Europe.

Jefferies In Talks To Sell Futures Business

As mentioned here yesterday, Investment bank Jefferies, owned by Leucadia National, is in talks to sell its commodities and financial derivatives brokerage.

Betfair Australia Owner Takes Controlling Stake In BetEasy Joint Venture
IGaming Business

Australian entertainment group Crown Resorts, which owns Betfair Australia, has entered into a new joint venture agreement with online betting company BetEasy combining with the sportsbook offering of Betfair Australia. Crown will be the majority owner of the joint venture with a 67% stake, with the existing BetEasy owners taking 33%.

Private Markets

IDBI Bank To Sell Stake In NSE

IDBI Bank is planning to sell (previously announced last month) stake in the National SE (NSE). The move is in line with guidelines on investments in non-core banking activities of public sector banks.

At present, the bank owns 2.2 million shares in the exchange, equal to a 4.99% stake, according to the bourse’s latest annual report. Other stakeholders include SHICL, GA Global Investments, GS Strategic Investments Limited, SAIF II SE Investments Mauritius and Aranda Investments (Mauritius) Pte. Each holds around 5% each. Further, the Life Insurance Corporation of India which holds 10.51% stake in the exchange, making it the largest stakeholder. The State Bank of India holds 10.19%. Delhi-based finance company IFCI, holds 5.55%.

FAO: IFCI, which is already in the process of divesting its 2.5% stake in the exchange.

PLY: There is a queue of public sector banks likely to sell exchange stakes in the near future due to these government guidelines. The problem is finding buyers given the anti-capitalist manipulations of past Indian regimes, particularly in the wake of the spectacularly reactionary and misguided Jalan Committee report which de facto demanded exchanges revert to a form of medieval marxism.

UCX Promoter Ketan Sheth Siphoned Funds, Finds KPMG Forensic Audit
Sharleen D’Souza – Business Standard

According to a preliminary report based on the forensic audit of Universal Commodity Exchange (UCX) by KPMG, Ketan Sheth, the exchange’s promoter, had siphoned funds and diverted these to group companies…

When contacted, Ketan Sheth said, “I am not aware of anything”.

Future Unclear For Romanian Bitcoin Exchange As Users Withdraw Funds
Pete Rizzo – CoinDesk

BTCXchange, Romania’s only order-book bitcoin exchange, has issued a statement encouraging all users to withdraw funds from the platform by Friday, 19th December.

Exchange users were asked to withdraw funds denominated in both bitcoin and US dollars due to unspecified “security reasons”. Further, it remains unclear whether the exchange plans to shut down permanently or if services could be reinstated.

The service interruption is notable given that the exchange had recently partnered with e-commerce processor Netopia mobilPay to enable 6,000 retailers to accept bitcoin payments.

Founded in January 2014, BTCXchange aimed to provide a destination for bitcoin traders who wanted to transact with the Romanian leu, the European country’s native currency.

A representative of Bitcoin Foundation Romania suggested that BTCXchange had as many as 3,000 accounts and 50 BTC (roughly $16,000 at press time) in daily volume before the announcement. Data from Bitcoin Charts suggests this has since fallen to 3 BTC.

Dividend News

BME agreed to distribute to its shareholders on December 23th the second interim dividend against 2014 earnings, to the value of €50 million. The figure represents a gross €0.6 per share, the same as that distributed in December 2013.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX flat, FTIL up 4%. Once upon a time I was actually naive enough to think the Indian system could resolve the crisis. Hard core cynicism has now set in.


APX Announces March 2015 Launch Of Its New NASDAQ Trading System

Asia Pacific Stock Exchange (APX) announced that it had taken delivery of the NASDAQ x-stream trading system to power its APeX trading platform which intends to launch on March 2015.

APX signed an agreement with Nasdaq in June 2014.

ESMA HFT Report – HFT Responsible For 24-43% Of Equity Trades
Andrew Saks-McLeod – Leap Rate

Despite government-level disdain for HFT, based on a sample of 100 stocks from nine EU countries in May 2013, a report by ESMA finds that HFT activity ranges from 24% to 43% of equity value traded, using alternative methodologies.

ESMA HFT report is available here.

PLY: So by cherry picking the biggest stocks, ESMA achieved a headline rate that will get a bit of shock and awe in the increasingly tabloid financial pages and do nothing to actually help create a spirit of constructive debate about markets and HFT going forward. Given how badly ESMA is spending the low budget it already had, I am inclined to wonder just why we have it in the first place when it is generating such unscientific and sensationalist bilge?

Barclays’ Antony Jenkins Calls End Of Universal Banking (subscription)
Martin Arnold – Financial Times

“The universal banking model is dead,” says Antony Jenkins, Barclays’ CEO — and not only because of tougher regulation and capital requirements.

“It is not all about capital. It is also about investment in technology,” he says. “We believe that technology is going to drive competitive advantage in this industry and you can’t afford to invest in technology in every place — so you have to pick where you have that competitive advantage.”

PLY: I would argue as a former client that Barclays abandoned universal banking years ago – they certainly were incapable of running client accounts for simple banking process…


EEX To Launch Fertiliser Contracts In January 2015

The European Energy Exchange (EEX), in cooperation with Cleartrade Exchange (CLTX) will launch an extension to its Trade Registration services for fertiliser contracts on 6 January 2015.

The product offering includes six derivatives contracts for fertilisers based on Urea, Diammonium Phosphate (DAP) and Urea Ammonium Nitrate (UAN) for different delivery points in the United States, Europe and North Africa. All products are cash-settled agreements settled against market indexes, published by Argus Media Limited, Fertecon Limited and CRU International Limited in “The Fertilizer Index*” report. Due to the small contract sizes of 25 tons compared to the standard size of 500 tons, this move promotes increased flexibility for EEX customers.

PLY: CLTX: Such a small entity, such a massive ambition, so many new products being driven. I like their style. Wonder could they do an inverse takeover within the EEX structure and let CLTX management run DB1, it could be a lot more exciting than the current plodding stasis (‘Jewish shopkeeper budget keeping’ incoming CEOs excepted – who knows how Mr Kengeter will shake things up).

JSE, Lusaka Stock Exchange & ZAMACE Progress Derivative Contract – Zambian Government Signs Executive Order Enabling Launch

JSE, Lusaka SE (LuSE) and Zambian Commodity Exchange (ZAMACE) are able to progress launch of derivatives contracts on Zambian agricultural products.

Career Paths

BME has appointed Mr Manuel Olivencia Ruiz as Lead Independent Director.

SEC announced that Gary Barnett (leaving CFTC as reported yesterday) and Gary Goldsholle have been named as deputy directors in the Division of Trading and Markets.

Financial Calendar


CBOE $0.21 quarterly dividend payment

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

Share Notes

Interactive Brokers Chairman Earl H. Nemser sold 4,129 shares Monday, December 15th at an average price of $27.60 (bargain $113,960.40). Mr. Nemser’s regular sales are chronicled on this specific page.

Analyst Notes

ASX Had Its Price Objective Raised By RBC Capital From $5.50 To $6.25 – Outperform Rating
Numis Securities Reiterated Their “Hold” Rating On LSE – GBX 2,074 Target Price
Lending Club Had Its Price Target Upped By BTIG Research To $31.00

SIX Receives AA- Credit Rating From Standard&Poor’s For The Fifth Time In A Row

Standard & Poor’s has once again affirmed an AA- credit rating for SIX Group Ltd. The two securities services providers SIX SIS Ltd and SIX x-clear Ltd each received an AA 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.


ESMA: Investment-Based Crowdfunding Needs EU-Wide Common Approach
ESMA has published an Opinion along with an Advice on Investment-based crowdfunding. The Opinion clarifies the EU rules applicable to crowdfunding, while the Advice highlights issues for consideration by the EU institutions to achieve greater regulatory and supervisory convergence within the EU.

PLY: Fascinating. A pan European light touch approach would be welcome to help Europe actually grow the engine of future prosperity but then again given the ham fisted approach of the blob and my current cynicism that ESMA actually is coping well with its current workload leads me to worry. Meanwhile, I will read this opinion and revert…although first up we have a crowdfunding campaign to round out on our new platform, HanzaTrade.

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