December 20 2013


A festive spirit appears close but there are still some interesting developments around worthy of a brisk winter scroll.

Everything from index licensing through job shuffles, the end of the WFE Paris office and change afoot in EU securitisation amidst a downgrade, questions about EMIR, NYSE partial stake disposal and lots more…

Finally a fond farewell to James Dunseath, oracle of PR/IR from the London offices of Euronext LIFFE for nearly 2 decades who is moving on today. I sincerely hope we will see you back in markets soon. Meanwhile, enjoy the chance to have a break and kudos for always managing not only to be prompt, efficient and dedicated, delivered but always interact with an inimitably charming demeanour. Good luck and thanks again for all your help over the years, James.

Public Markets

TASE And Eurex Sign Derivatives Trading Cooperation Agreement
Deutsche Borse

Eurex will list and clear index futures based on the TA-25 index, Israel’s blue chip index and one of the most heavily traded regional equity indexes. Eurex’s TA-25 index futures will be denominated in US dollars. The launch is planned for H1 2014.

PLY: The parting shot by outgoing Ester Levanon, alluded to in yesterday’s EI. A good deal for both parties and another interesting addition to EUREX’s burgeoning series of stock index products from around the world. Good deal for both parties…

For Exchanges In 2013, Life’s A Glitch
waters technology

US stock and options exchanges suffered such significant outages in 2013 that regulators stepped in to bring the markets to task over the failures, many of which were linked to problems with the exchanges’ ability to disseminate market data.

PLY: …and one might add, regulators’ failures to make infrastructure more efficient thanks to their overarching grand designs which don’t really work.

LSE Puts Audit Out To Tender
Accountancy Age

Current auditor PwC has been in place since at least when the exchange listed, back in 2001 with the appointment expected to be confirmed in Summer 2014.

PLY: Off the top of my head, audit guidelines tend to favour a rotation of auditors every 7 years or thereabouts. It is interesting that regulators were not making noises earlier about the auditing of the LSE group, even before recent acquisitions. By the time they stand down, PwC will presumably have done (at least) nearly twice the recommended stint with LSE as a public company alone.

ICAP Says EU Carbon Supply Fix Is Blunt, Needs Central Overseer

Paul Newman, MD of ICAP Energy in London, comments on EU carbon permit oversupply:

“Over recent months, we have seen EU emissions trading system prices fall in an environment of significant oversupply. The attempt to provide price stability through the ‘backending’ process has been something of a blunt weapon, because it doesn’t address the fundamental, structural issue of oversupply.”

PLY: It’s Christmas, the EU has just had its credit rating downgraded, I am struggling to say something charitable and seasonal and hence I would like to say…oh look a Chinese IPO:

Private Markets

Shanghai SE Sees First IPO In 14 Months

Shanghai SE had its first nominal IPO in 14 months on Thursday, which is actually a securities account transfer from B to A shares by Zhejiang Zheneng Electric Power Co Ltd.

Markit Connects To HKMA’s Trade Repository
The Asset

MarkitSERV, Markit’s global electronic trade processing service for OTC derivatives, has been reporting interest rates and FX derivative trades to the trade repository operated by the Hong Kong Monetary Authority since December 10.

DTCC Provides The Industry With A Blueprint To Drive Down MMI Settlement Processing Risks

DTCC published a detailed plan for proposed enhancements to its settlement processing for money market instruments (MMIs) to improve intraday settlement finality and further reduce credit and liquidity risk in the MMI market.

CFTC Issues Extension Of A Time-Limited No-Action Relief To JSCC, Its Qualifying Participants & Affiliates

In the extension of CFTC Letter 12-56, the Division states that it will not recommend that the Commission take enforcement action against:

Japan Securities Clearing Corporation (JSCC), an applicant for registration as a DCO, with respect to registering as a DCO pursuant to the requirements of section 5b(a) of the CEA.

A qualified clearing participant of JSCC, or a parent or affiliate of a JSCC qualified clearing participant, subject to the Japanese clearing requirement, with respect to clearing a yen-denominated IRS that is required to be cleared under section 2(h)(1)(A) of the CEA, through a registered DCO.

Bitcoin Evangelists See Path To A Cashless Utopia (subscription)
Wall Street Journal

“We are at the Mosaic stage of bitcoin,” says Jeremy Allaire, CEO of Circle Internet Financial, a bitcoin-focused technology startup.

PLY: Precisely my belief. BTC is the pathfinder which creates the cryptocurrency universe and increases the beneficial pressure of disintermediation on government and central banks.

Angry Bitcoin Users Blamed For China Central Bank Cyber Attack
International Business Times

Angry bitcoin users are being blamed for launching cyber attacks on the People’s Bank of China, after it attempted to curb the crypto-currency’s use in the country.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX has launched itself back towards its former price equilibrium (up 10% today) as FTIL are forced to exit and as NYSE pares its shareholding. The lure of cash is driving the FTIL share price too, +7% on the day.

SEBI To Act After FMC Censures Jignesh Shah, FTIL

“In claiming ignorance of the management’s approach to running NSEL, Jignesh Shah left himself be critically exposed to claims of incompetence, at best. Now that the regulators have acted to mark out those who were not fit and proper within the exchange, hopefully they will progress to similarly address any failings of regulators during this affair too,” said Patrick L. Young, an executive director at DV Advisors, a capital market advisory firm.

“Clearly being deemed unfit to sponsor exchanges is a damning indictment for an IT provider with so many exchange stakes. The verdict may also raise core problems for FTIL when it sells software as buyers may feel uncomfortable dealing with a group which has been sanctioned in this way.”

PLY: I wish to passionately endorse the above quotation which I made a day or so ago. Good article about the NSEL fallout. Indeed I applaud not just the Livemint team but all the financial media in India – your standards have remained high throughout this NSEL affair and it is always a joy to read your insights.

Police Action Spurs NSEL Defaulters
Business Standard

Fearing action from the EOW of the city police, borrowers of NSEL have started queuing to sign settlement agreements with the beleaguered spot commodity trading platform, struggling to resolve the payment crisis.

According to informed sources, Chandigarh-based Yathuri Associates, the fifth largest defaulting borrower, with a payment obligation of Rs 421 crore (USD 67.5 mln) as of December 11, is negotiating for a 10 per cent cut and a two-year timeline for full repayment. “While the exchange might consider the ‘haircut’, the timeline looks a bit stretched. We are looking for a maximum of a one-year settlement period,” said an exchange source.

PLY: The proposed timelines are clearly too long. A year is manageable (aka it will be nearly 2 years from crisis erupting by the time settlement is complete anyway). The turnaround from creditors simply seeking to deny all liability to appearing chastened and unnerved at the negotiating table has been a remarkable reversal. For this all investors must thank the firm and resolute actions of the Mumbai fraud squad (EOW).

Govt Looking At All Options To Deal With Crisis: Sachin Pilot
The Financial Express

Emphasising that the priority is to protect the interest of investors, Union Minister Sachin Pilot has said all options are available before the government to deal with the NSEL crisis and its fall out with the final report expected in the “next few days”.

“All options are available in front of us… like in company law there are many provisions that can be invoked depending on what the (final) report says,” Pilot said.

MCX Board Meets On Dec 26 To Consider FMC Order
The Hindu Business Line

MCX has called a board meeting on December 26 to discuss the implication and future course of action to be taken following the commodity market regulator FMC declaring the promoters of MCX ‘not fit’ to operate a commodity exchange.

The 80-page order ruled that FTIL, the promoter of MCX, should reduce its stake in the commodity exchange to 2 per cent from 26 per cent now. FTIL informed the stock exchanges on Thursday that the company was examining the FMC order and would take “appropriate steps” in due course of time.

Interestingly, the regulator has not prescribed a time frame for the dilution of stake.

PLY: Tthe lack of a timeline is not a big issue as there could be liability claims if they push the action too fast. Indeed the ease with which the market absorbed a 1% stake by NYSE suggests there are keen buyers out there. With the share price increasing post the reduction order, FTIL have fewer levers to claim they are being economically disadvantaged.

MCX India – Change In Directorate

MCX has informed BSE that FMC vide letter dated December 19, 2013 has appointed Mr. S. N. Ananthasubramanian, President of Institute of Company Secretaries of India, as FMC nominated Independent Director on the Board of the Company upto March 31, 2016 under clause 1.1 (i) of the revised FMC guidelines for constitution of the Board of Directors etc. dated August 12, 2013 in place of Mr. R.M. Premkumar (IAS Retd), FMC Nominated Independent Director who has resigned from the Board.

MCX-SX Amends Regulations Governing Its Board
The Economic Times

MCX-SX, for now, part of FTIL, has amended rules for its top management, that among others, prohibit trading or clearing members to be part of the governing board.

Besides, the new rules do not allow any Foreign Institutional Investor (FII) to have any representation in the governing board of the bourse.

PLY: India needs to clean its act up here and invite more foreign board participation and indeed to clearly have FIIs represented. It smacks of protectionism and parochialism which given how dire the crises have been when India has pushed its isolationist approach to managing exchanges, clearly some foreign blood would be welcome to provide alternative perspectives.

Venkat Chary Slams ‘Motivated Campaign’ Against Shah
Business Standard

Former bureaucrat Venkat R Chary, who headed MCX as non-executive chairman for about a decade, says he is disgusted with the motivated media campaign being run by “political, corporate and bureaucratic” vested interests against his long-term friend, Jignesh Shah.

He added he was worried this would affect the confidence of young entrepreneurs “coming together to put things together”.

PLY: In some ways I am minded to agree with Mr Chary. There has long been an anti-Jignesh spirit oozing from many regulators (and arguably regulations – was Jalan really not aimed at least in part at the FTIL ‘upstarts?’). India does not really pass the level playing field smell test for many overseas onlookers and in an increasingly competitive world this is a growing problem for a country with so much potential.

Long Court Battle Awaits Jignesh Shah, FTIL And Team
Business Today

FMC order declaring Jignesh Shah, Joseph Massey (MD of MCX-SX), Shreekant Javalegar (CEO – MCX) and FTIL unfit to run an exchange hasn’t come as a surprise to the market.

Jignesh Shah may be down but he’s certainly not out…

Jaimini Bhagwati: Lessons From The NSEL Fiasco
Business Standard

The December 2, 2013, edition of this newspaper carried an item under its Chinese Whispers column (“The NSEL effect”) that said aspirants for positions in the MCX-SX were asked what steps they would have taken to avoid the NSEL scam.

This is a relevant question going forward, since one of the reasons retail investor interest in capital markets has waned is the sense that much of what goes on is non-transparent or enveloped with malfeasance.

PLY: Clearly they picked a few linear processors for interview as new MCX-SX CEO. However the holistic nature of the Indian exchanges landscape means that the interconnectedness of all things ‘exchange’ have never been clearer for the development of the Indian exchange marketplace. Hopefully a holistic candidate has emerged to take the job as Indian exchanges still have huge potential, despite the incredible success of incumbents such as NSE. This is a very useful, reflective column by Mr Bhagwati.


Competition Causing Trading Glitches (Video)

The reliability of trading systems was once considered akin to those used by airlines. Now glitches and downtime are common. Veronica Augustsson, CEO of Cinnober, says this is the consequence of competition on cost without quality stipulations.

NASDAQ OMX Launches Real-Time Quotes In IR Mobile Application
Nasdaq OMX

Nasdaq recently launched real-time quote functionality to its existing IR web application version of Thomson ONE Investor Relations.

Career Paths

According to Financial News, Stuart Sloan, a senior London-based executive at NYSE Euronext, who helped engineer the exchange’s successful bid to run Libor, left the company earlier this month.

James Dunseath is today enjoying his last day at NYSE Euronext LIFFE as Head of Media Relations in London. As mentioned above, I wish him every success in the future.

The Order Machine (TOM) has hired its main rival’s former executive director, Alan van Griethuysen, to head up new project development at the Dutch options market.

Alan van Griethuysen worked at NYSE Euronext for 33 years before leaving the exchange group last September.

PLY: Good to see the inimitable Alan Van Griethuysen back in the saddle, this time in a more options focussed role after previously overseeing all manner of commodities operations latterly from AEX/Euronext.

SIFMA announced it has appointed Ananias (Andy) Blocker EVP, public policy and advocacy. Mr. Blocker was most recently MD, federal affairs manager in the U.S. Office of Public Policy at UBS. In his new role at SIFMA, Mr. Blocker will be responsible for SIFMA’s governmental affairs and advocacy initiatives. Mr. Blocker’s career at SIFMA will begin in January.

Changes in investors/shareholders

NYSE Euronext Sells 565 k MCX Shares
The Economic Times

NYSE Euronext offloaded 565 k shares of India’s premier commodity bourse MCX.

According to information available with the bourses, NYSE Euronext sold 565 k shares (1.1 per cent stake) of MCX through the open market. The shares were offloaded at an average price of Rs 427.02 apiece (USD 6.85), valuing the transaction at Rs 24.12 crore (USD 3.87 mln).

NYSE Euronext, held 4.73 per cent stake or 2 412 767 shares of MCX at the end of Q3.

PLY: At last, the beginning of the end for another failed NYSE investment (Qatar having been sold out a few months back for no tangible gain). The latest sorry tale of Indian expansion involved NYSE Euronext buying 4.73% (2 412 767 shares) in 2008 for $55 mln ($22.8 apiece). Thereafter various sale attempts didn’t happen. As recently as March NYX could have realised about $45 million.

Given the sale yesterday of 1.1% (565 000 shares) for $3.87 mln ($6.85 apiece) – a $9.01 mln loss can be booked while if marked to market at $6.85 apiece the entire NYSE Euronext stake values $16.52 mln which would mean a total loss of $38.47 mln.

I am minded to think an NYSE sale is in fact a sign that MCX shares are headed much higher. Remember too, NYX parent ICE holds a stake in the NCDEX commodities exchange.

Financial Calendar


CBOE Q4 $0.18 dividend payment

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

Share Notes

David Lester, LSEG director of corporate strategy sold a total of 200,000 shares between December 17 and 19, at a price ranging from GBP 1,6 to 1,64 (bargain GBP 320 – 328 k).

David Casterton, ICAP CEO of global broking, transferred 201,835 shares to his wife Caroline Casterton as a gift. He now owns 262,969 shares.

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, the sale of 8,472 shares Wednesday, December 11th at an average price of $24.16 (bargain $204,683.52) reported December 16th and the sale of 7,437 shares Friday, December 13th at an average price of $24.45 (bargain $181,834.65) reported December 18th Interactive Brokers CFO Paul Jonathan Brody sold another 7,555 shares Tuesday, December 17th at an average price of $24.29 (bargain $183,510.95).


Crowdfunding Comes To Gambling

GamCrowd, a crowdfunding company specifically for gambling start-ups, has been launched by Chris North, the man behind London’s Fox Poker Club which he founded in 2010.

GamCrowd seeks to match investors, start-ups and industry expertise for the gambling industry, revolutionising the way that start-ups raise money in an era when early stage funding is becoming harder to source.

Crowdcube Equity Crowdfunding Statistics (Infographic)
Crowdfund Insider

Crowdcube recently updated their infographic sharing their statistics on their business. Investment crowdfunding is growing at a phenomenal pace in the UK and Crowdcube is in the lead for greatest amount raised in equity.

Other stories

Regulators To Soften Rules To Help Revive Securitisation

PLY: As the EU juggernaut concludes the summit of the Lithuanian Presidency, there are moves afoot to soften proposed new rules for securitisation in an attempt to kick-start a financing tool tarnished by the financial crisis.

“However, bankers said the easing wouldn’t be enough to revive the market on its own and called for wider support for the market.

The market has shrunk dramatically since then. Securitisation in Europe has dropped from $1.2 trillion in 2008 to $322 billion last year, according to BoE figures.

ECB, BoE and the EU’s EC have called for action to revive securitisation to encourage long-term investments, but using stricter standards.”

I remain a big fan of securitisation and indeed see it as having a role to play in future cryptocurrency for instance but the situation was a touch out of hand in the run up to 2008…

Europe’s Banking Deal Leaves Doubts (subscription)
Wall Street Journal

Europe’s leaders have their banking union, but Europe’s financial system is far from unified.

Eighteen months ago, euro-zone leaders set out to revolutionize their banking system and pledged to “break the vicious circle between banks and sovereigns.”

PLY: …So they promptly sold the banks shed loads sovereign more debt…

Alas the Banking Union is more duct tape than solution, demonstrating everything that is wrong with the EU and the Euro currency. Core power continues to ebb away from Brussels and a messy confidence-power vacuum is growing across Europe. Oh sorry, I was trying to be festive and upbeat…but in this context, it’s a challenge.

ESMA Clarifies Reporting Of On-Exchange Derivatives Under EMIR

ESMA has issued today updated Question & Answers (Q&As) on the implementation of EMIR.

These updated Q&As clarify, for example, how exchange-traded derivatives (ETDs) should be reported to trade repositories (TRs).

From 12 February 2014…

PLY: Useful cut out and keep answers.

An ISDA Survey- SEFs

Earlier this year, CFTC required that SEFs with temporary SEF registration status come into full compliance with all applicable SEF rules beginning on October 2, 2013.

Originally, those rules were thought to apply only to transactions that would be required to trade on a SEF.

Concerns prompted ISDA to conduct the SEF Market Fragmentation Survey to obtain a clear picture of potential market disruption or fragmentation resulting from SEF rule implementation.

Click here for full details.

WFE Focus December

Focus is the WFE monthly review which centralizes business news from individual exchanges. If also has a monthly statistical component with key data on members’ markets…

PLY: At which point we bid a fond farewell to that beautiful office at 176 Rue de Rivoli (perfectly positioned between La Maison Angelina, Le Meurice and Place de La Concorde). Moreover I wish the departing staff (essentially all of them barring CEO Huseyin Erkan apparently) every success. All the best to the WFE establishing their new offices in London. Peter Clifford and many others are now seeking new postings, having chosen not to follow the WFE move across the English Channel.

The 10 Best Performing Stock Markets Of 2013
The Telegraph

Venezuela – Caracas Stock Exchange – 452pc
Japan – Jasdaq index – 51.1pc
Iceland – OMXI All Share – 38.5pc
Zambia – Lusaka Stock Exchange – 37.2pc
Ireland – Irish Stock Exchange – 35.2pc
Nigeria – Nigerian Stock Exchange – 34.9pc
Greece – Athens Exchange – 34.5pc
Argentina – Mercado de Valores – 33.9pc
US – Nasdaq index – 33.7pc
Pakistan – Karachi Stock Exchange – 31.8pc

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