February 03 2014

elb2I am deeply saddened to report the death of Anne Heyman Merrin Friday last following an equestrian accident. In her own right a former New York Assistant District Attorney and noted philanthropist who drove the construction of a village for Rwandan children orphaned after the genocide, in this financial markets parish the late Mrs Merrin is better known as the wife of Seth Merrin, financial visionary and founder of Liquidnet. Exchange Invest extends its condolences to Seth, their children and extended family at this sad time.

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Today in EI, lots on swaps, SEFs et al as the Trans-Atlantic tussle could become a regulatory tango, Kudrin for MOEX Chair? EU consolidated tape project boosted. Energy margins going up, NZX approved in US, ICE completes SMX purchase, CETIP consolidating, reducing, new projects? Various merger discussions, Ukraine Exchange to trade Eurobonds along with a series of other bond developments across the world…

A lot of information today, Welcome to Monday’s Exchange Invest, scroll on:

Public Markets

ICE Completes Acquisition Of SMX

ICE has completed the acquisition of SMX, following regulatory approval by the Monetary Authority of Singapore (MAS).

SMX, including the SMX Clearing Corporation (SMXCC), will continue to be based in Singapore and operate as a separate recognised body with its own independent board of directors, including former SGX President Ang Swee Tian. The exchange and clearing house will transition from existing technology to the ICE trading and clearing platforms in due course.

First announcement regarding the acquisition was reported by EI on November 19th.

PLY: After a tricky spell trying to establish in Singapore, ICE has made the breakthrough with an excellent acquisition which gives it a first mover advantage in global clearing.

Europe & US Watchdogs Align On Derivatives Action (subscription)
Financial Times

US and European regulators have pledged greater co-operation as they introduce rules to tighten oversight of the global $700tn over-the-counter derivatives market, seeking to reduce tensions.

PLY: Extraterritorial CFTC ambitions overstepped the mark, although the EU could have devised rules more similar to US ones to facilitate implementation (couldn’t we all just refer to “SEFs” for starters?). Harmonisation ought to help global trade, provided it is not merely a trans-Atlantic bodge. Encouraging to see talks happening and engagement as equal recognition of the likes of trade repositories, clearing houses etc.

How EU Can Avoid Own Goals On Swaps Reform (subscription)
Financial News

PLY: The industry endeavours to help prime ESMA to create rules that can be easily implemented and make sense. Fascinating to read that MAT having specific tenors (usually calendar years), there may be an issue where trading out on non-calendar year tenors might not have to take place according to the rules…

Also, the point of failure burden on Traiana for credit checking is considerable. Yes, Traiana have multiple back-ups and a deservedly sound reputation but single points of failure are always an issue, no matter how soundly run.

ICAP Seeks CFTC Oversight Of London Swap-Trading Amid U.S. Suit

ICAP, wants to register a London-based platform with the CFTC to follow Dodd-Frank Act rules for SEFs and provide access to U.S. traders, according to an application submitted this month. The brokerage is the first large SEF platform to seek U.S. approval for an overseas-based entity – despite their being ongoing legal tussles over CFTC extra-territoriality.

Cetip Scraps Plan To Create Brazil Bourse

PLY: An interesting development as the dance to create Brazilian competition intensifies. “Cetip SA Mercados Organizados, Brazil’s largest securities clearinghouse, [has] dropped plans to create a local bourse or help ATS Brasil clear and settle cash equities trades when it sets up an exchange in coming months.” The story cites CEO Gilson Finkelsztain seeking to keep company focus and naturally BM&F Bovespa shares soared on the news. BM&F is unlikely to open their clearing arm to a competitor until next year while it seems CETIP has opted for more focus with several senior executives leaving in the past week. The situation does not help the NYSE backed ATS Brasil project.

ASX To Open Singapore Office In 2014 To Lure Hedge Fund Cash

ASX will hire staff for a new office in Singapore this year as Australia’s main exchange operator seeks to do more business with Asian hedge funds and proprietary traders: “It will be a meaningful presence,” Peter Hiom, Sydney-based deputy CEO at ASX.

PLY: A good idea from ASX who need to have a greater footprint as they have become quasi-strangers on the international stage in recent years, a foolish move driven by cost concerns at the expense of business development.

Private Markets

BATS Global Markets Direct Edge Receive SEC Approval To Merge
BATS Global Markets

BATS Global Markets and Direct Edge announced the receipt of SEC approval for their merger and expect to close the transaction within days.

EI first reported the merger talks on August 26th.

BATS-Direct Edge Merger Puts Traders In Control Of Venues

BATS Global Markets’ merger with Direct Edge will put a broker-owned stock exchange operator in the top ranks on Wall Street for the first time since NYSE Euronext and Nasdaq OMX went public.

The merged BATS Global Markets’ owners include Goldman Sachs, Morgan Stanley, Credit Suisse, Citadel, Citigroup and KCG.

PLY: Don’t forget that ISE owns a significant chunk of the merged BATS so it is not an exclusive sell-side domain for shareholders with ISE CEO Gary Katz remaining on the entity board.

India – USE In Merger Talks With DSE
Business Standard

Relatively new Indian market United SE (USE), has begun talks with the management of Delhi SE (DSE) about merging, amid opposition by broker shareholders of the latter who are concerned that the deal will destroy value.

Previously, EI reported the rumors about the merger talks between USE and MCX-SX on January 8th.

PLY: USE was also rumoured to be speaking with MCX-SE (tricky as MCX employed the USE CEO) and I can see the core concern of the Delhi members as there does not immediately appear to be any very significant value addition here (despite Delhi being quasi-dormant in recent years). Note too that at one time GMEX founder Hirander Misra was going to lead DSE at a time when LSE purchased 5% during 2012.

Dark Pools, Meet “Twilight Pools”
Speed Dating By Candlelight – The Growth Of Twilight Pools

PLY: Interesting. Peter Fredriksson of Baymarkets discusses a new type of trading venue: the “Twilight Pool” where the level of opacity “is controlled to match pre-defined conditions.” Interesting to ponder although I wonder if pure buy side is not so concerned about signal leakage as to be wary? However, as a way to liquidate positions quickly it may work, building on, the sort of call auction provisions which, for example, ePit was building into its model circa 2000 A.D.

EPEX SPOT Inaugurates Office In Vienna

European Power Exchange EPEX SPOT opened its Vienna office on 30 January 2014 in the Mayerhofgasse and is headed by Arnold Weiß.

Hong Kong Bitcoin Exchange HKCex Launches After $2m Investment

A new Hong Kong bitcoin exchange, HKCex, has launched after raising $2m in funding from local investors.

HKCex is led by Chairman & CEO Pheng Cheah. The company will allow mainland China customers to open accounts and will also accept wire transfers from mainland bank accounts.

PLY: Clearly a lot of that spend was used to create the linkages with the Chinese mainland. Interesting development.

Bullion Exchange Brings Ripple Into The Physical World

A new service launching in Singapore uses the Ripple network to acquire, store and convert precious metals into any currency for customers anywhere in the world.

Ripple Singapore is a new kind of Ripple ‘gateway’, Singapore’s first, and the first in the world to offer trade in precious metals.

Users maintain a balance in a Ripple wallet (similar to a bitcoin wallet), while the bullion itself is vaulted in Singapore. They can then use that balance to pay anyone instantly in any currency available on Ripple, or trade the bullion itself. Ripple Singapore’s model charges 0.2% per transaction, and nothing for vault storage.

Dividend News

Charles Schwab declared a quarterly dividend. Shareholders of record on Friday, February 7th will be given a dividend of 0.06 per share on Friday, February 21st.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL are largely flat, the former down nearly 1%, the latter up about 1%.

Vaish Takes Charge As CEO Of MCX
Business Standard

Manoj Vaish took charge on Saturday, Feb 1st at MCX, India’s largest commodity derivatives trading bourse, as MD and CEO having been selected January 3 for a 3 year term. He was formerly MD of NSDL Database Management. The MCX charge was vacant after Shreekant Javalgekar resigned in late October, following the payment default at NSEL, where he was one of the directors.

Sources said Vaish had sought a longer period, of three months from January, for assuming the office at MCX. However, FMC, the derivatives regulator, had requested him to join as early as possible.

MCX-SX New CEO Saurabh Sarkar To Review Business Links With FTIL
The Economic Times

For Saurabh Sarkar, stepping in as the CEO of MCX-SX, could be like walking on a minefield. Business is slow, competition is fierce, legal and regulatory issues may spring from the NSEL scam and resistance could come from insiders loyal to the previous management that was handpicked by Jignesh Shah’s FTIL.

Don’t Delay FTIL Stake Reduction, Regulator Tells MCX
Business Standard
Ask Financial Tech To Bring Down Stake In 10 Days, FMC Tells MCX
The Hindu Business Line

FMC has ordered India’s largest commodity futures exchange, MCX, to delay no more in reducing the equity of its promoter entity, FTIL to below two per cent from its current 26%, giving FTIL a 10 day deadline to produce a time limited programme for a sale.

NSEL Investors Now Plan To Target Individual Brokerages
Business Standard

PLY: The various NSEL investor groups are focussing on individual brokerages having derived information from the Grant Thornton report that they say denotes brokers failing to take appropriate care of client funds.

NSEL Contests Forensic Audit Findings On IBMA
The Economic Times

The forensic audit report findings that Indian Bullion Markets Association (IBMA), an NSEL subsidiary, punched intra-day trades that accounted for 95% of the total e-series trading turnover over its life, has been hotly contested by NSEL.

Chokshi & Chokshi, the auditor, notes that the proprietary “match trades” bore the same buy and sell price, which resulted in no profit no loss but had the effect of increasing the total turnover, luring investors on to the e-series platform and generating transaction fees for NSEL. Further, the volume of IBMA’s match trades to total trading of e-series was not disclosed to the public.

PLY: Auditors claim big ‘wash’ trades were central to NSEL…


FESE: MMT Becomes A FIX Administered Standard

PLY: FIX has become the central body creating a consolidated tape for Europe. Previous private initiatives had failed and FESE took up the cudgel but it was not capitalised or organised to provide the infrastructure to actually coalesce the data and therefore the move to a FIX standard makes eminent sense.

FESE has done a good job to develop the standard this far from the original 2010 CESR recommendations and handing the baton on to FIX to develop the prototype to a full working model is a good move as Europe needs a consolidated tape.

Calypso Interfaces To DTCC GTR For EMIR Reporting

Calypso Technology, has released an interface to the DTCC’s GTR (GTR) for EMIR reporting (1 of 6 TRs approved by ESMA).

Nasdaq OMX – INET Nordic PROD – Enhancements To Pre-trade Risk Management (PRM) On February 10, 2014
Nasdaq OMX

NASDAQ OMX Nordic’s Pre-trade Risk Management (PRM) provides member firms with the ability to facilitate pre-trade protection on both FIX/OUCH on INET Nordic. As of February 10, 2014 NASDAQ OMX Nordic will introduce the following enhancements to its Pre-trade Risk Management (PRM) service:

Fat Finger control during auctions
Market order prevention during auctions

The service is available in the test environment on January 31, 2014.


Margin Requirements For Gas And Power Trading Jump At ICE, NYMEX

The amount traders will have to deposit to participate in the natural gas and power markets — where price volatility has increased dramatically in recent weeks — is going up Monday with increases from 26%-50% on Henry Hub gas futures and electricity almost doubling across the CME, amongst other contract moves.

Ukraine – PFTS Exchange Wants To Launch Trading With Eurobonds

The PFTS SE (Kyiv) is studying the possibility of launching trading with Ukrainian eurobonds, a member of the PFTS board Serhiy Danov said at a press conference: “We’re working with key traders with securities under the project. The idea is that eurobonds are brought to Ukraine and traded using hryvnias. All stock market players will have access to them.”

NZX Eyes US Investors Thirsty For Dairy Derivative
New Zealand Herald

NZX has taken another step towards expanding its dairy derivatives market into the US with CFTC approval to allow direct access for American customers as a registered Foreign Board of Trade under the US Commodity Exchange Act, allowing US investors’ direct access to trade in New Zealand dairy derivatives. Whole milk powder options and futures, skim milk powder and anhydrous milk fat futures have traded on the NZX since October 2010.

NZX Press release here.

Trading In Govt Paper Initiated At Karachi Bourse
The News

The Karachi SE (KSE) has soft-launched the trading of government debt securities on its bond automated trading system on Friday ahead of a formal launch by the Finance Minister scheduled for a few weeks’ hence.

EEX Introduces Fee Holiday For Guarantees Of Origin

EEX is creating new incentives for trading in Guarantees of Origin (GoO). Trading participants will be exempt from trading fees (0.6 € Cents per GoO) for trading transactions concluded from February 2014 until the end of 2014.


TASE Targets Overseas Technology Equities

TASE is trying to give local investors a taste of the rally in technology stocks that they missed.

TASE said last week that it’s looking to create an index that will include technology stocks traded locally and overseas.

Thailand Futures Exchange To Modify SET50 Futures Contract Size In May
The Nation

Thailand Futures Exchange (TFEX) will modify its SET50 futures contract to have a smaller contract size on May 6, 2014.

Career Paths

Kudrin Tipped To Head Moscow Exchange Board
The Moscow Times

The Central Bank has asked former Finance Minister Alexei Kudrin to head the MOEX‘s supervisory board, a source familiar with the situation said.

Kudrin, who was finance minister for 11 years before being fired in 2011 by then-President Dmitry Medvedev for criticizing state spending, could give his answer before the end of this week, the source told Interfax on Thursday.

MCX-SX announced the appointment of Saurabh Sarkar as its new CEO and MD, following approval from market regulator SEBI.

NZX announces that Shane Dinnan has accepted the role of Head of Energy and will start on 10 February.

Linda Benzi formerly director, sales and relationship management with Markit Securities Finance is to join E*Trade Financial Corporation according to sources.

It is understood Benzi will be joined by Anthony Barros who was formerly a MD at RCap Securities Inc

Marco Polo New World, the leading provider of trading solutions for developed and emerging markets, today announced that Christian Robertson has assumed the role of CEO of the company.

Financial Calendar

This week

CME Q4 2013 results
SunGard Q4 2013 results
NASDAQ OMX Q4 2013 results
TMX Q4 2013 results
6.60p ICAP interim dividend payment
CBOE Q4 2013 results

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

Share Notes

Charles Schwab major shareholder Charles R. Schwab sold 1,500,000 shares Thursday, January 30th at an average price of $25.04 (bargain $37,560,000.00). He now owns 1,325,250 shares. Mr. Schwab’s regular sales are chronicled on this specific page.

Interactive Brokers Group Chairman Earl Nemser sold 15,349 shares Wednesday, January 29th at an average price of $21.29 (bargain $326,780.21). Mr. Nemser’s regular sales are chronicled on this specific page.

Interactive Brokers Group CFO Paul Jonathan Brody sold 8,534 shares Wednesday, January 29th at an average price of $21.29 (bargain $181,688.86). Mr. Brody’s regular sales are chronicled on this specific page.


First Crowdfunding Fund Launched (subscription)
Financial Times

Crowdfunding website Crowdcube has launched an actively managed fund that will pick and choose early-stage businesses for investors.

BankToTheFuture Confirms Talks With UK Financial Regulator
blue&green tomorrow

Online investment platform BankToTheFuture is just one of the new challenger banks emerging, as it looks to receive regulatory approval and potentially improve competition across the banking sector.

Other stories

Finger Of Blame For HSBC Surge Points At Trader’s £1.7m Mistake (subscription)
The Times

A “fat finger” trade catapulted the price of Europe’s biggest bank nearly 10 per cent higher in a minute, before the LSE’s circuit-breakers kicked in to halt trading in HSBC shares.

At 11.20am yesterday, they rose from 630p to 688p after an order to buy 1.7 million at a 10 per cent premium to the prevailing price was input into SETS, the Stock Exchange’s electronic trading system, which is used by banks and brokers across Europe.

State Street UK Fined £22.9m By FCA For Transitions Management

State Street UK has been fined £22,885,000 by FCA. State Street UK’s Transitions Management (TM) business had developed and executed a deliberate strategy to charge clients substantial mark-ups on certain transitions, in addition to the agreed management fee or commission. These mark-ups had not been agreed by the clients and were concealed from them.

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