December 19 2013


EU agrees CSD rules, ICE looks back, IPOs look up. BATS Edge top slot in US equities, Vienna Warsaw deal making slow (any?) progress.

Lots of change still happening before Christmas and indeed on a personal note, I have resigned from the board of data centre company DCE, leaving me available for a suitable INED position in fintech, tech, finance etc…

Public Markets

EU Agrees Overhaul To Settlement Rules (subscription)
Financial Times

EU policy makers have agreed new regulations aimed at preventing a breakdown of the market infrastructure that conducts trade settlements in the 28-strong member bloc.

The regulation, covering 30 central securities depositories (CSD) and known as CSD-R, was agreed late on Wednesday in Brussels between the European Commission, European Parliament and the council of ministers.

Press release here.

PLY: Over a quadrillion euros (€1,000,000,000,000,000) were settled by CSDs in the EU during the past two years. Fascinating statistic. These rules on the face of it look to move towards harmonisation which is good although the nitty gritty of collateralisation is an issue: with Euroclear and Clearstream in particular being hit by charges for the collateral services arms. It will take a while to digest all of this although at first it looks reasonably progressive.

No news yet to emerge on any clearing changes in derivatives where CCP debate has been a lot more fractious.

A key factor for investors will be the definitions and rules for EU CSDs as that definition may yet lead to more CSDs being created in the short term for specific niches – these could be of interest to investors clearly. Hopefully pragmatism has been retained to encourage new entrants and not merely cosset legacy entities.

ICE Announces 2013 Achievements

PLY: ICE-NYSE Euronext have issued a blizzard of statistics in a release which outlines success in a rather user-unfriendly interface.

This has been another landmark year for ICE with the purchase of NYSE Euronext and next year ought to herald the spinning out of the European stock exchange business while it will be fascinating to see how NYSE takes to being under new ownership.

As to IPOs, well you could be confused given the volatility of data this week:

On Monday data from Renaissance Capital suggested NYSE had 119 IPOs to NASDAQ’s 102.
By Tuesday NASDAQ was reporting 233 new listings and 125 IPOs.
Today’s data headlines a group NYSE Euronext figure of 157 IPOs of which 141 took place in NYC and a bare 16 took place in Western Europe (a figure of macroeconomic significance which I will endeavour to serenely gloss over but it is difficult to avoid thinking Euro/FTT/Hollande etc).

So, it seems NY won the day overall with 141 IPOs compared to 125 but then again the press release is not the clearest example of corporate communications to cross the desk this year and we may even be mistaken.

Anyway, over 250 IPOs is good for the USA. Given that we all thought SarBox might kill IPOs forever, both exchanges have cause for cheer from 2013.

…and the key takeaway is of course that ICE now owns more assets which it will develop in line with its high standards of client service and profitability.

IPO Optimism Seen Accelerating In 2014 In Europe, Especially UK (subscription)
Financial Times

A recovery in IPOs is expected to accelerate into next year after surging global equity markets encouraged companies and sponsors to launch deals in Europe and the US in 2013 including Hilton Worldwide, Royal Mail and Twitter.

PLY: A bounce in investment banking that ought to help equity markets which seem to have shrugged off the latest taper twist. However, I feel obliged to note some ever-pithy analysis from the brilliant Albert Edwards at Soc Gen: perhaps a recession is imminent as we’re circa 55 months into the upswing and the average cycle lasts about 60 months?

One final thought, if IPOs are ‘the new black’ does that mean private share trading initiatives are going to have a better, or worse, 2014?

Vienna-Warsaw Bourse Tie-Up Could Take Time

Talks on a tie-up between the Vienna and Warsaw stock exchanges are not set for a quick conclusion, the co-CEO of the Vienna SE told the Wirtschaftsblatt newspaper.

“We respect one another, are in contact and talk. But talking will probably go on for some time still,” Michael Buhl was quoted as saying in an interview published on Wednesday.

PLY: My favourite New Yorker cartoon involves the caricature executive in his office speaking on the telephone, scheduling his diary, noting: “No – Thursday’s out. How about never – is never good for you?”

I like Michael Buhl, he is a good man and clearly he has an exchange to sell but I cannot hide my sheer apathy (at best) for a Vienna-Warsaw deal. It has no merit.

CBOE Claims Victory In Legal Battle With Rival ISE

A judge dismissed a challenge by rival ISE against CBOE’s exclusive license to list options on certain key U.S. indexes such as the S&P 100, 500 Index & the DJIA.

In the latest chapter of the years-long dispute, ISE challenged in a New York court S&P Dow Jones Indices’ right to license its indexes. The court dismissed the challenge, saying an Illinois court had already ruled on the issue, and that ruling would be the final judgment.

CBOE press release here.

PLY: Said exclusive licensing has significant ramifications and clearly helps keep a floor under the CBOE valuation.

BM&F Bovespa Increases Investment Plans For 2014 (subscription)
Wall Street Journal

BM&F Bovespa has raised the amount it expects to invest next year as it improves its customer services ahead of expected competition in the hosting of securities trading.

The company will invest between 230 million and 260 million Brazilian reais ($99 million and $112 million) in 2014, compared with between 170 million and 200 million reais previously announced.

Since 2010, the exchange has been investing in the integration of its clearing houses, IT upgrades and construction of a data center.

PLY: Proof that the prospect of competition drives investment in customer services. Good luck to BM&F. Ramification appears to be that Brazil will be open to competitors if the incumbent exchange is taking the threat this seriously.

NYSE Surpassed As Biggest U.S. Market Owner By Merging Upstarts

PLY: BATS-Edge ascendant as the merging operators took first place in the day’s trading as the Dow Jones Indices witnessed record highs:

BATS-Edge: 21.9%
All-ICE-NYSE Venues: 21.8%

– third time this has happened post BATS-Edge merger announcement apparently…

Clearstream Extends The ICSD Settlement Day & Improves US Market Coverage
Deutsche Borse

Clearstream, is extending the settlement day of its ICSD.

In a first step, from April 2014, it will be possible to settle internal and domestic US transactions via Clearstream until 20:00 CET (14:00 EST), an extension of two hours compared to the current cut-off time of 18:00 CET (12:00 EST). US Dollar cash deadline will also be extended to 20:00 CET (14:00 EST), allowing cash management closer to local market deadlines.

In a second step, in 2015, the deadlines will be pushed back by another 1.5 hours, extending settlement to 21:30 CET (15:30 EST) and finally Clearstream aims to offer settlement throughout the entire US business day in 2016.

PLY: DB’s ever efficient Clearstream moving towards genuinely effective global ICSD services is a logical step to be applauded.

3rd Time Lucky For TSE Night Trading?
Japan News

After two failed attempts to offer stock trading at night, the TSE is hoping for a case of third time lucky.

CFTC Misreporting Size Of Swaps Market, Agency Says (subscription)
Wall Street Journal

U.S. commodity regulators are stumbling at one of their primary goals: bringing transparency to the multitrillion-dollar swaps market.

PLY: CFTC are blaming errors at DTCC and CME swaps data repositories apparently although to be fair to the TRs there has been a mountain to climb in this implementation. Trying to assess the size of OTC markets has always been difficult. Soon we will have a clearer picture when the implementation glitches are ironed out.

Derivative Trading Rules Will Not Reduce Risk (subscription)
Financial Times

PLY: Terrifying quotation of the day from the redoubtable Professor Craig Pirrong:

“It’s somewhat problematic as these [clearing house] structures are fragile and can break in a crisis. The regulators didn’t really think about where the collateral is going to be coming from.”

Tri-party repo and other collateral concerns are bubbling up here. With regulators already stretched for resources to cover the financial sector, it is difficult to see how they can police the corporate sector….presumably that will fall to CCPs which brings us back to my supermodel buffet analogy and indeed Professor Pirrong’s quotation. A thought-provoking article by Philip Stafford.

Private Markets

Guangdong Carbon Market Begins Briskly
Malaysian Insider

The first day’s trading in what will be by far the largest carbon market in China kicked off briskly with pricing in line with expectations, as Beijing continues its drive to slow its rapid growth of heat-trapping emissions.

Volumes in Guangdong’s carbon permit market, expected to be the world’s second largest in terms of carbon dioxide covered, in early trade surpassed full-day totals during the launches of the country’s three other carbon exchanges.

China, the world’s biggest emitter of greenhouse gases, wants to use markets to achieve its target to cut emissions per unit of GDP to 40-45% below 2005 levels by 2020 at the lowest possible cost.

PLY: Good news for the carbon markets, impressive first day stats (presumably you don’t have vanity/welcome wash trades in carbon markets as it is not ecologically friendly?).

SEBI Tells Vadodara Bourse To Close By May 30
Business Standard

SEBI has recommended to the Vadodara SE (VSE) to opt for a voluntary closure by May 30 next year.

PLY: Looks like the final curtain for the VSE…

Bitcoin Crashes As China’s Biggest Exchange Blocks Yuan Deposits
The Independent

China’s biggest Bitcoin exchange has stopped accepting deposits of Chinese yuan, prompting a decline in the price of the digital currency of more than a third in one day.

BTC China (BTCC) said it had been forced to suspend the intake of Chinese currency after a recent ban on Chinese mainland financial institutions using BTC was extended to all third-party payment service providers.

PLY: Presumably that cancels my advisory meeting with a large holder of BTC who wanted to query my outline sell advice they sought on Monday. For BTC it is a set-back, cue another round of obituaries and the sell-off may continue a long way yet. Nevertheless, this isn’t the beginning of the end, it isn’t even the end of the beginning for cryptocurrency or BTC…

Dividend News

Warsaw SE To Pay Out Dividends At 30-50 Pct Of Profits

WSE plans to pay out dividends at 30-50 percent of its annual consolidated profits starting from 2013, the company said in its new dividend policy published on Wednesday, having paid out half of its 2012 annual profit in dividend.

WSE Press release here.

PLY: A strong piece of forward guidance which will clearly please the dominant (and cash strapped) government shareholder as well as underpinning the rangebound share price. Given this level of payout, it would appear a dilutive earnings deal with Vienna is not on the cards anytime soon, if at all…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 1.5% and FTIL down 2% as the market digests the “fit and proper” ramifications.

FTIL And The Wages Of Weak Regulation

PLY: A pertinent pithy Editorial from Livemint as they raise many excellent points about the manifest failures within the Indian regulatory system.

All Eyes On SEBI After FMC’s Decision On FT
Business Standard

Following FMC’s ruling declaring FTIL unfit to operate an exchange, the spotlight is now on SEBI.

The stock market watchdog had said any adverse findings by other regulators might have a bearing on the exchange.

“…Any adverse findings by any other regulator may result in withdrawal of recognition of the exchange,” Sebi had said in a press release in September, while renewing its recognition for one more year.

Why Wasn’t Shah Informed Of Asset Freeze, Court Asks EOW
Business Standard

The Bombay high court on Wednesday rapped the economic offences wing (EOW) of the Mumbai Police for not informing Jignesh Shah, chairman of FTIL, about his assets being frozen.

Hearing the case filed by MMTC, the court had summoned Shah and EOW officials to clear the air over Shah’s frozen assets. EOW was found to have not duly informed Shah.

Investors Welcome Prospect Of New Anchor Investor In MCX

MCX’s investors appear to think that promoter FTIL’s likely exit from the company is a case of good riddance. The company’s shares rose by 10.8% after FMC ruled that FTIL, Jignesh Shah and two other erstwhile directors of MCX are unfit to run an exchange.

The shares were also helped by a simultaneous news release that private equity investor Blackstone has received permission from FMC to increase its stake from the current 2% to 5% in MCX.


TT Goes Live On Nasdaq OMX NLX

Trading Technologies has released its connection to Nasdaq OMX NLX.

DTCC: Money Market Instrument Optimization Through Finality

The Depository Trust & Clearing Corporation (DTCC), through its subsidiary, The Depository Trust Company (DTC), will institute MMI Optimization through Finality for DTCC Clients beginning in Q4 2015.

Thomson Reuters Improves Performance & Transparency For Autex FIX Order Routing Customers

Thomson Reuters has moved its global FIX order routing system, Autex Trade Route, onto its Elektron network, improving performance for over 750 buy-side firms and 700 executing brokers and venues using the service.


Indonesian Regulator Approves Two Commodity Contracts

Jakarta Futures Exchange (JFX) has received government backing to launch coffee and rubber futures contracts. Indonesia is the world’s biggest exporter of refined tin, nickel ore and thermal coal, the biggest grower of palm and the second-largest producer of rubber and robusta.


Tel Aviv Bourse CEO Expects Futures Market Accord This Week

Tel Aviv SE will probably sign a deal with a leading derivatives exchange this week to issue futures on Israel’s benchmark equities Tel Aviv 25 index from the first quarter, CEO Ester Levanon said.

“We should have alliances with a big exchange and get everything we can from that alliance, but not be swallowed” outgoing CEO Ester Levanon said.

PLY: Good luck to Ester Levanon in the future, she has helped shape TASE for many years.

Career Paths

ASX announced the appointment of Mr Dominic Stevens as a NED of the company effective 19 December 2013, continuing the Board renewal program outlined at ASX’s 2013 AGM.

Mr Stevens will stand for election as a director at ASX’s next AGM in September 2014.

Financial Calendar


CBOE Q4 $0.18 dividend payment

CBOE Q4 2013 financial results on Friday, February 7, 2014.

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

Analyst Notes

Investec Increased The Price Target On Betfair From GBX 750 To GBX 950 – “Sell” Rating
Charles Schwab Upgraded By Evercore Partners From “Underweight” To “Equal Weight”

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.


Title III Crowdfunding Infographic
Crowdfund Insider

Equity crowdfunding platform EarlyShares provided the following infographic outlining some of the facts and estimates behind Title III of the JOBS Act.

PLY: Worth perusing…

Other stories

Europe Agrees To Pool Control Of Bank Wind-Ups (subscription)
Financial Times

Europe took a big step towards completing its banking union on Wednesday, in spite of warnings that the planned system for handling bank failures was inadequately funded and unwieldy.

PLY: The problem is how much pressure the system can withstand as it appears ominously close to breaking point beneath the surface already.

SEC Proposes Rules To Increase Access To Capital For Smaller Companies

SEC voted to propose rules intended to increase access to capital for smaller companies.

The SEC’s proposal would build upon Regulation A, which is an existing exemption from registration for small offerings of securities up to $5 million within a 12-month period.

The updated exemption would enable companies to offer and sell up to $50 million of securities within a 12-month period.

PLY: Progress.

EU Emission Slump Tests Broker Survival Skills: Carbon & Climate

As Europe’s recession recedes, trading via brokers in the $74 billion carbon emissions market is plunging amid a record glut in the commodity Richard Sandor once predicted to reach the highest volume in the world.

PLY: Interesting article to compare and contrast with the new Chinese exchange above. I remain a fan of these markets as the best way to deliver change without the clunking incompetence of government at the core of subsidy and other practices but clearly the EU has suffered some issues thanks to the EU’s…well being the EU.

EBA Publishes Final Draft Technical Standards On Market Risk

EBA published today final draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) related to market risk. In particular, the EBA published RTS on the definition of materiality thresholds for specific risk in the trading book; ITS on closely correlated currencies; RTS on non-delta risk of options in the standardised market risk approach; and ITS on appropriately diversified indices. The standards will be part of the Single Rulebook aimed at enhancing regulatory harmonisation in the banking sector in the EU.

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