December 23 2013


Welcome to Exchange Invest Number 160, our last pre-Christmas issue with some final nuggets of news before the Festive Period commences with gusto… Everything from race horses to Hillary Clinton via selling Euronext, contractual struggles with CME/ICAP while Brazil is open to competition in markets and China appears keen to promote the mainland ahead of Hong Kong…

Meanwhile all appears silent at EU level and it seems so far no agreement has been reached

On a personal note, thanks again for a burgeoning inbox. Particular thanks to the latest batch of C-suite executives who took the time this past week to acknowledge Exchange Invest as your preferred source of market information. We are all flattered and I am delighted my commentary is deemed so useful.

As of now it’s time to take a break as the world all but shuts down. Over the holidays, we will publish an Exchange Invest digest on December 30th then again January 3rd and from January 6th (while celebrating Epiphany and Orthodox New Year), we will resume full publication daily!

In the meantime, from our various bases in Europe, we wish you and yours a Very Happy Christmas!

Public Markets

CME Seeks To Broaden Cash Options In Clearinghouse Default Rules

CME, concerned that a new U.S. rule undermines the use of Treasuries as collateral at clearing houses, is proposing a workaround that would make greater use of client cash, according to a Dec. 18 filing with the CFTC.

Under the plan, cash from other clearinghouse members would be more readily available to offset losses, particularly in cases where it might take too long to liquidate collateral such as Treasuries.

PLY: CME Clearing House continues to think through the issues and their take on Treasuries seems reasonable – I mean if the whole US government market is rendered entirely illiquid, aren’t we all likely to be knitting our own sweaters and sourcing food in the Catskills or Cotswolds as opposed to worrying about clearing houses settling?

CME Sues Ex-Executive Paulhac For Breach-of-Contract

CME sued former MD Laurent Paulhac for breach of contract, seeking to block him for a year from becoming CEO of ICAP’s SEF.

CME claims in the lawsuit, filed in state court in Chicago, that it negotiated an agreement that would let Paulhac join ICAP’s global executive management team as of Dec. 2, while barring him from day-to-day activities until April 1, 2014.

CME learnt on December 16, CME that “Paulhac was acting in violation of this agreement, as well as his underlying employment agreement, and is, in fact, directly involved in the day-to-day activities of ICAP’s SEF and strategies related thereto.”

PLY: Without any insights into the rights/wrongs of this particular complaint, this new stream of litigation does not surprise me as for months there have been issues where, well, let’s say some executives appear to have gardened by social media during their “down time.”

Euronext Cuts Equity Options Fees By A Fifth (subscription)
Futures and Options Intelligence

NYSE Euronext has pledged to slash equity options fees by a fifth in a broader reshuffle of tariffs.

PLY: Under enormous competitive pressure from EUREX and TOM, Euronext have buckled and hope to discount their way out of a crisis which has been festering for a decade. Competitors are taking chunks of business just as Euronext is approaching sell-off.

Alternative Venues Prosper At Exchanges’ Expense (subscription)
Financial News

Europe’s alternative trading venues have continued to gain market share from incumbent exchanges this year, capitalising on the rise in equity trading volumes in the region.

PLY: It was the year when alternative venues made incremental progress in most parts, apart from Spain where the ongoing rampant denial of progress tactic deployed by BME ‘management’ continues to clearly backfire. So far BME has ‘only’ fallen to 78% from 94.3%. Expect another step towards minority in 2014 unless the incumbent Spanish cash equities market gets to grip with competition.

LME Competes With Bohai For Mainland’s Affections
South China Morning Post

While mainland China is trying to push a home-grown commodity exchange to expand overseas, it appears the LME faces a tough battle to attract mainland investment and support.

The Tianjin Bohai Commodity Exchange, for instance, has seen many perks from the mainland government, based on its first roadshow in Hong Kong last week.

PLY: A fascinating story which clearly displays how the Chinese government prefer mainland champions to territorial Hong Kong businesses, underlying a suspicion evident since before reunification in 1997. As Peking University Professor Kong Qindong rather brutally stated last year while questioning the parentage of HK folk and getting to the nub of mainland suspicions: “These people are too used to being running dogs for British imperialists.”

However it takes two to contango in metals trading. Clearly one issue for the largely unknown Tianjin Bohai exchange is that due diligence from the west may long favour LME, even an HK domiciled LME enterprise over a Chinese mainland newcomer, albeit one which can enjoy a launch at the Bank of China’s Central headquarters.

Bourses To Have 18 Months To Adapt To New Brazil Rules-Watchdog

Bourses and clearinghouses will have 18 months to adapt to new rules in Brazil’s financial exchange industry that will be implemented in June

PLY: Regulator CVM clearly seems to be encouraging competition in Brazil which is exciting news for the likes of BATS and ICE planning new ventures in the country.

BM&FBovespa Chief Says Things Could Improve For Brazilian Exchange In 2014 (subscription)
Wall Street Journal

PLY: CEO Edemir Pinto discusses the follies of government intervention and other factors which impeded equity market valuations during 2013…

Nasdaq Price System May Take Years For Structured Note Progress

Nasdaq said it may take years for its Mutual Fund Quotation Service to make “measurable progress” in getting banks to list daily values for their structured notes.

Nasdaq hasn’t added any U.S. structured notes more than a month after announcing that the securities were eligible for listing, according to a review of its website. Aside from mutual funds, the service publishes pricing information on assets such as real estate investment trusts.

Trading Tax Hurts Bid To Keep Euronext In French Hands

France’s unloved FTT is hampering its efforts to persuade local institutions to buy stakes in Paris stock exchange operator Euronext and keep it under French influence after its expected spin-off next year.

But while Finance Minister Pierre Moscovici said last week he was confident negotiations would result in a deal, others do not share his optimism.

PLY: Alas it is difficult to discern whence Mr Moscovici is gaining his insights.The FTT has failed, barely taking in 600 million Euros against a planned 1.6 billion, with volumes collapsing and IPOs shrinking. French institutions are unguarded in their hostility to the government and hence reluctant buyers of Euronext.

Eerie comment of the day comes from one Paris banker:

“The government wants to ensure Euronext remains anchored in Paris, but bankers wonder if Euronext still has a French soul. Isn’t it too late?”

Private Markets

Thai Bourse Rolls Out 2014 Plan To Build Quality, Reform Thai Capital Market

SET announces its three-year (2014-2016) strategy on “Energizing the industry for sustainable growth,” which in 2014 aims to build a quality-focused capital market culture, become a key Greater Mekong Sub-region (GMS) connector, and enhance infrastructure and capability to cope with any uncertainty, while proceeding with plans for its new derivatives trading system to go live by mid-2014.

SET will also reform the Thai capital market in four key areas, which are: financial literacy, bond market, gold market, and agricultural commodity.

PLY: I hope SET can continue its progress with the ambitious growth targets it has set for itself.

American Civics Exchange Shows Hillary, Christie Leading For 2016

PLY: Still in pre-authorisation mode but already pointing interesting crowd trends with only virtual dollars at stake. I happen to be highly sceptical Hilary can go the whole way, as per 2008.

CFTC’s Division Of Market Oversight Provides Conditional Time – Limited No-Action Relief To Australian-Based Trading Platform Yieldbroker Pty

This no-action relief shall commence upon publication of this letter, and shall expire on the earlier of (1) May 16, 2014, at 12:01 am EST, or (2) the date upon which Yieldbroker achieves SEF registration status.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 4%, FTIL is flat while the Enforcement Directorate raids property and SEBI has filed “fit and proper” requests after FMC’s withdrawal of status to FTIL, Jignesh Shah and others last week…

Clearly we will miss tomorrow’s weekly default/repayment but then again given the recent average is a weekly shortfall of about 27 million dollars, I doubt there will be big news – like a full repayment installment!

ED Raids Aastha Group Premises
Business Standard

The enforcement directorate (ED) conducted searches on various premises of Aastha Minmet India and Juggernaut Projects under the Prevention of Money Laundering Act, 2002 (PMLA) said sources. Aastha Minmet and Juggernaut are among the major defaulters in NSEL case, owing investors Rs 250 crore (USD 40.35 mln).

FT Gets SEBI Notice On ‘Fit & Proper’ Status
Business Standard

SEBI sent a showcause notice to the Jignesh Shah-promoted FTIL on Friday, asking for proof that ‘fit and proper status’ ought to be maintained and a show cause to allow retention of significant exchange stakes.

PLY: SEBI use the same formula as FMC, asking FTIL to prove it is suitable to hold “fit and proper” status. Not much doubt this is likely to end up going the same way for Jignesh methinks.

HC Decides To Hear Petition Of FTIL, Jignesh Shah On 8 Jan

The Bombay high court on Saturday fixed for hearing on 8 January a petition filed by FTIL and its chief Jignesh Shah challenging an order of FMC that held that both were not “fit and proper” to run any exchange.

PLY: Evidently the plaintiffs will want to exhaust all legal channels against the removal of their “fit and proper” status while we look forward to the January 8th hearing to remove ambiguity asap.

MCX Seeks To Retire Permanent Director Post
The Financial Express

MCX has sought shareholders’ approval to do away with permanent director’s post on its board that was created specifically for founder Jignesh Shah who recently resigned the seat.

Fixing MCX Post NSEL Scam: Can New Chairman Satyananda Mishra Restore Its Credibility?
The Economic Times

Former bureaucrat Satyananda Mishra, a former chief information commissioner, was appointed last month as chairman of MCX. His task: restore the credibility of the exchange and revive its flagging fortunes.

Tougher Times Ahead For Smaller Commodity Exchanges

Volumes in Indian commodity exchanges, particularly in new and small ones, have fallen significantly in the past few months, raising questions over the survival of these bourses.

PLY Confidence has been eroded over the NSEL fiasco leaving smaller exchanges fighting for survival…although in some senses it was always thus. Hopefully they can survive, thrive and continue the orientation of agricultural markets to meeting risk transfer for small farmers as well as wealthy speculators…


Moscow Exchange: Removal Of 50 Mln USD Cap On Initial Margin On Derivatives Market

Moscow Exchange has removed the 50 mln USD cap on initial margin for Derivatives market as of 7pm 20th December 2013. Derivatives market participants can now supply any amount of USD as initial margin.

PLY: MOEX is incrementally improving its collateral flexibility.

Pakistan – Regulatory, Operational Framework For Govt Securities Directed
Business Recorder

Federal Minister for Finance, Ishaq Dar has directed that all required legal formalities and operational groundwork should be completed to ensure launching of government securities trading in stock markets across the country by end of January 2014.

Financial Calendar


CME Q4 $0.45 dividend payment


BME €0.6 second interim dividend payment
Nasdaq OMX Q3 $0.13 dividend payment
Record date CME $2.60 annual variable dividend

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

Share Notes

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, the sale of 15,237 shares Wednesday, December 11th at an average price of $24.16 (bargain $368,125.92) reported December 16th and the sale of 13,376 shares Friday, December 13th at an average price of $24.45 (bargain $327,043.20) reported December 18th Interactive Brokers Chairman Earl Nemser sold another 15,094 shares Thursday, December 19th at an average price of $24.28 (bargain $366,482.32).

Analyst Notes

  • JPMorgan Chase & Co. Assumed Coverage On NASDAQ OMX – “Neutral” Rating And $44.50 Price Target

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 Bill Heading To Governor

A bill that would allow companies to get capital for start-up or expansion by “crowdfunding” has passed both houses of the Michigan Legislature and is awaiting Gov. Rick Snyder’s signature which is expected before the end of the year.

Crowd Racing – Next Generation Racehorse Ownership
Sacramento Bee

New crowdfunding platform Crowd Racing launched mid November, Crowd Racing is the first crowdfunding platform anywhere in the world to exclusively offer racehorse ownership.

PLY: I know his binary eminence Hamish Raw had the same thought as myself and it has long been clear a ‘horse bourse’ as Hamish neatly termed it had, er, legs. One slight problem is that origination is only a part of the issue and a secondary market is really required. Nevertheless, Crowd Racing is a step forward. with a fundamental market segment behind it and indeed its appearance with this structure further proves just how legacy exchange regulations have stifled many market innovations in recent years that now the crowdfunding juggernaut may help reconcile…

Other stories

IOSCO Publishes Report On Regulation Of Retail Structured Products

IOSCO published the final report on Regulation of Retail Structured Products, which provides a toolkit outlining regulatory options that securities regulators may find useful to regulate retail structured products.

EBA Publishes Final Draft Technical Standards On The Reporting Of The Hypothetical Capital Of A CCP

EBA published its final draft Implementing Technical Standards (ITS) on the reporting of the hypothetical capital of a CCP.

Canadian Securities Regulators Seek Comment On Derivatives Rule Relating To Mandatory CCP Clearing

Members of the Canadian Securities Administrators (CSA) today published for comment the CSA Staff Notice 91-303 – Proposed Model Provincial Rule on Mandatory CCP Clearing of Derivatives.

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